COFS 10-K Fiscal year ended Dec. 31, 2023

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-K

☒		Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
		For the fiscal year ended December 31 , 2023
☐		Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
		For the transition period from__________________ to __________________

Commission File Number: 000-19202

ChoiceOne Financial Services, Inc.
(Exact Name of Registrant as Specified in its Charter)

Michigan (State or Other Jurisdiction of Incorporation or Organization)	38-2659066 (I.R.S. Employer Identification No.)
109 East Division Street , Sparta , Michigan (Address of Principal Executive Offices)	49345 (Zip Code)

( 616 ) 887-7366
(Registrant's Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common stock	COFS	NASDAQ Capital Market

Securities registered pursuant to Section 12(g) of the Act: None.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐		Accelerated filer	☐
Non-accelerated filer	☒		Smaller reporting company	☒
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

If securities are registered pursuant to 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

As of June 30, 2023, the aggregate market value of common stock held by non-affiliates of the Registrant was $ 159.3 million. This amount is based on an average bid price of $23.00 per share for the Registrant's stock as of such date.

As of February 29, 2024, the Registrant had 7,552,919 shares of common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

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ChoiceOne Financial Services, Inc.

Form 10-K ANNUAL REPORT

Contents

		Page
PART 1
Item 1:	Business	3
Item 1A:	Risk Factors	10
Item 1B:	Unresolved Staff Comments	16
Item 1C:	Cybersecurity	16
Item 2:	Properties	17
Item 3:	Legal Proceedings	17
Item 4:	Mine Safety Disclosures	17
PART II
Item 5:	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	18
Item 6:	Reserved	18
Item 7:	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 7A:	Quantitative and Qualitative Disclosures About Market Risk	37
Item 8:	Financial Statements and Supplementary Data	38
Item 9:	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	83
Item 9A:	Controls and Procedures	83
Item 9B:	Other Information	83
Item 9C:	Disclosure Regarding Foreign Jurisdictions that Prevent Inspections	83
PART III
Item 10:	Directors, Executive Officers and Corporate Governance	84
Item 11:	Executive Compensation	84
Item 12:	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	84
Item 13:	Certain Relationships and Related Transactions, and Director Independence	85
Item 14:	Principal Accountant Fees and Services	85
PART IV
Item 15:	Exhibits and Financial Statement Schedules	86
SIGNATURES		88

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FORWARD-LOOKING STATEMENTS

This report and the documents incorporated into this report contain forward-looking statements that are based on management's beliefs, assumptions, current expectations, estimates and projections about the financial services industry, the economy, and ChoiceOne Financial Services, Inc. Words such as “anticipates,” “believes,” “expects,” “forecasts,” “intends,” “is likely,” “plans,” “predicts,” “projects,” “may,” “could,” “estimates,” “look forward,” “continue,” “future,” and variations of such words and similar expressions are intended to identify such forward-looking statements. Management’s determination of the provision and allowance for credit losses, the carrying value of goodwill, loan servicing rights, other real estate owned, and the fair value of investment securities and management’s assumptions concerning pension and other postretirement benefit plans involve judgments that are inherently forward-looking. All of the information concerning interest rate sensitivity is forward-looking. All statements with references to future time periods are forward-looking. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions (“risk factors”) that are difficult to predict with regard to timing, extent, likelihood, and degree of occurrence. Therefore, actual results and outcomes may materially differ from what may be expressed, implied or forecasted in such forward-looking statements. Furthermore, ChoiceOne Financial Services, Inc. undertakes no obligation to update, amend, or clarify forward-looking statements, whether as a result of new information, future events, or otherwise.

Risk factors include, but are not limited to, the risk factors disclosed in Item 1A of this report. These are representative of the risk factors that could cause a difference between an ultimate actual outcome and a preceding forward-looking statement.

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PART I

It em 1. Business

General

ChoiceOne Financial Services, Inc. (the “Company”) is a financial holding company registered under the Bank Holding Company Act of 1956, as amended (“BHC Act”). The Company was incorporated on February 24, 1986, as a Michigan corporation. The Company was formed to create a bank holding company for the purpose of acquiring all of the capital stock of ChoiceOne Bank, which became a wholly owned subsidiary of the Company on April 6, 1987. Effective November 1, 2006, Valley Ridge Financial Corp., a one-bank holding company for Valley Ridge Bank (“VRB”), merged with and into the Company. In December 2006, VRB was consolidated into ChoiceOne Bank. Effective October 1, 2019, County Bank Corp. ("County"), a one-bank holding company for Lakestone Bank & Trust (“Lakestone”), merged with and into the Company. Lakestone was consolidated into ChoiceOne Bank in May 2020. On July 1, 2020, Community Shores Bank Corporation ("Community Shores"), a one bank holding company for Community Shores Bank, merged with and into the Company. Community Shores Bank was consolidated into ChoiceOne Bank in October 2020. ChoiceOne Bank owns all of the outstanding common stock of ChoiceOne Insurance Agencies, Inc., an independent insurance agency headquartered in Sparta, Michigan (the "Insurance Agency"). On July 18, 2023, the Company organized 109 Technologies, LLC as a wholly owned subsidiary of the Company with the intent of selling a fintech product marketed to other banks and bank holding companies.

The Company's business is primarily concentrated in a single industry segment, banking. ChoiceOne Bank (referred to as the “Bank”) is a full-service banking institution that offers a variety of deposit, payment, credit and other financial services to all types of customers. These services include time, savings, and demand deposits, safe deposit services, and automated transaction machine services. Loans, both commercial and consumer, are extended primarily on a secured basis to commercial enterprises and individuals. Commercial lending covers such categories as business, industry, agricultural, construction, inventory, and real estate. The Bank’s consumer loan departments make direct and indirect loans to consumers and purchasers of residential and real property. In addition, the Bank offers trust and wealth management services. No material part of the business of the Company or the Bank is dependent upon a single customer or very few customers, the loss of which would have a materially adverse effect on the Company.

The Bank’s primary market areas lie within Kent, Muskegon, Newaygo, and Ottawa counties in western Michigan, and Lapeer, Macomb, and St. Clair counties in southeastern Michigan in the communities where the Bank's respective offices are located. The Bank serves these markets through 31 full-service offices and five loan production offices. The Company and the Bank have no foreign assets or income.

At December 31, 2023, the Company had consolidated total assets of $2.6 billion, net loans of $1.4 billion, total deposits of $2.1 billion and total shareholders' equity of $195.6 million. For the year ended December 31, 2023, the Company recognized consolidated net income of $21.3 million. The principal source of revenue for the Company and the Bank is interest and fees on loans. On a consolidated basis, interest and fees on loans accounted for 60%, 59%, and 58% of total revenues in 2023, 2022, and 2021, respectively. Interest on securities accounted for 24%, 24%, and 19% of total revenues in 2023, 2022, and 202 1, respectively. For more information about the Company's financial condition and results of operations, see the consolidated financial statements and related notes included in Item 8 of this report.

Competition

The Bank’s competition primarily comes from other financial institutions located within Kent, Muskegon, Newaygo, and Ottawa counties in western Michigan and Lapeer, Macomb, and St. Clair counties in southeastern Michigan. There are a number of larger commercial banks within the Bank’s primary market areas. The Bank also competes with a large number of other financial institutions, such as savings and loan associations, insurance companies, consumer finance companies, credit unions, internet banks and other financial technology companies, and commercial finance and leasing companies for deposits, loans and service business. Money market mutual funds, brokerage houses and nonfinancial institutions provide many of the financial services offered by the Bank. Many of these competitors have substantially greater resources than the Bank. The principal methods of competition for financial services are price (the rates of interest charged for loans, the rates of interest paid for deposits and the fees charged for services) and the convenience and quality of services rendered to customers.

Supervision and Regulation

Banks and bank holding companies are extensively regulated. The Company is subject to supervision and regulation by the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”). The Company's activities are generally limited to owning or controlling banks and engaging in such other activities as the Federal Reserve Board may determine to be closely related to banking. Prior approval of the Federal Reserve Board, and in some cases various other government agencies, is required for the Company to

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acquire control of any additional bank holding companies, banks or other operating subsidiaries. Under Federal Reserve Board policy, the Company is expected to act as a source of financial strength to the Bank and to commit resources to support it.

The Bank is chartered under state law and is subject to regulation by the Michigan Department of Insurance and Financial Services (“DIFS”). State banking laws place restrictions on various aspects of banking, including permitted activities, loan interest rates, branching, payment of dividends and capital and surplus requirements. The Bank is a member of the Federal Reserve System and is also subject to regulation by the Federal Reserve Board. The Bank’s deposits are insured by the Federal Deposit Insurance Corporation (the “FDIC”) to the maximum extent provided by law. The Bank is a member of the Federal Home Loan Bank system, which provides certain advantages to the Bank, including favorable borrowing rates for certain funds.

The Company is a legal entity separate and distinct from the Bank. The Company's primary source of funds available to pay dividends to shareholders is dividends paid to it by the Bank. There are legal limitations on the extent to which the Bank can lend or otherwise supply funds to the Company. In addition, payment of dividends to the Company by the Bank is subject to various state and federal regulatory limitations.

The Deposit Insurance Funds Act of 1996 authorized the Financing Corporation (“FICO”) to impose periodic assessments on all depository institutions. The purpose of these periodic assessments is to spread the cost of the interest payments on the outstanding FICO bonds issued to recapitalize the Savings Association Insurance Fund (“SAIF”) over a larger number of institutions.

The federal banking agencies have adopted guidelines to promote the safety and soundness of federally-insured depository institutions. These guidelines establish standards for, among other things, internal controls, information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, compensation, fees and benefits, asset quality and earnings.

The Company and the Bank are subject to regulatory “risk-based” capital guidelines. Failure to meet these capital guidelines could subject the Company or the Bank to a variety of enforcement remedies, including issuance of a capital directive, the termination of deposit insurance by the FDIC, a prohibition on accepting brokered deposits, and other restrictions on its business. In addition, the Bank would generally not receive regulatory approval of any application that requires the consideration of capital adequacy, such as a branch or merger application, unless it could demonstrate a reasonable plan to meet the capital requirement within a reasonable period of time.

Under Federal Reserve Board policy, the Company is expected to act as a source of financial strength to the Bank and to commit resources to support the Bank. In addition, if DIFS deems the Bank's capital to be impaired, DIFS may require the Bank to restore its capital by a special assessment on the Company as the Bank's sole shareholder. If the Company fails to pay any assessment, the Company’s directors will be required, under Michigan law, to sell the shares of the Bank's stock owned by the Company to the highest bidder at either a public or private auction and use the proceeds of the sale to restore the Bank's capital.

The Federal Deposit Insurance Corporation Improvement Act (“FDICIA”) requires, among other things, federal banking agencies to take “prompt corrective action” in respect of depository institutions that do not meet minimum capital requirements. FDICIA sets forth the following five capital categories: “well-capitalized,” “adequately-capitalized,” “undercapitalized,” “significantly-undercapitalized” and “critically-undercapitalized.” A depository institution's capital category will depend upon how its capital levels compare with various relevant capital measures as established by regulation, which include a common equity Tier I risk-based capital ratio, Tier 1 risk-based and total risk-based capital ratio measures and a leverage capital ratio measure. In addition, a capital conservation buffer is required. Under certain circumstances, the appropriate banking agency may treat a well-capitalized, adequately-capitalized, or undercapitalized institution as if the institution were in the next lower capital category.

Federal banking regulators are required to take specified mandatory supervisory actions and are authorized to take other discretionary actions with respect to institutions in the three undercapitalized categories. The severity of the action depends upon the capital category in which the institution is placed. Subject to a narrow exception, the banking regulator must generally appoint a receiver or conservator for an institution that is critically undercapitalized. An institution in any of the undercapitalized categories is required to submit an acceptable capital restoration plan to its appropriate federal banking agency. An undercapitalized institution is also generally prohibited from paying any dividends, increasing its average total assets, making acquisitions, establishing any branches, accepting or renewing any brokered deposits or engaging in any new line of business, except under an accepted capital restoration plan or with FDIC approval.

Banks are subject to a number of federal and state laws and regulations, which have a material impact on their business. These include, among others, minimum capital requirements, state usury laws, state laws relating to fiduciaries, the Truth in Lending Act, the Truth in Savings Act, the Equal Credit Opportunity Act, the Fair Housing Act, the Fair Credit Reporting Act, the Expedited Funds Availability Act, the Community Reinvestment Act, the Real Estate Settlement Procedures Act, the Service Members Civil Relief Act, the USA PATRIOT Act, the Bank Secrecy Act, regulations of the Office of Foreign Assets Controls, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, electronic funds transfer laws, redlining laws, predatory lending laws, antitrust laws, environmental laws, money laundering laws and privacy laws. The monetary policy of the Federal Reserve Board may influence the growth and

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distribution of bank loans, investments and deposits, and may also affect interest rates on loans and deposits. These policies may have a significant effect on the operating results of banks.

In general, the BHC Act limits the business of bank holding companies to banking, managing or controlling banks and other activities that the Federal Reserve Board has determined to be closely related to the business of banking. In addition, bank holding companies that qualify and elect to be financial holding companies may engage in any activities that are financial in nature or complementary to a financial activity and do not pose a substantial risk to the safety and soundness of depository institutions or the financial system without prior approval of the Federal Reserve Board. Activities that are financial in nature include securities underwriting and dealing, insurance underwriting and making merchant banking investments. The Company has elected to be a financial holding company.

In order for the Company to maintain financial holding company status, the Bank must be categorized as "well-capitalized" and "well-managed" under applicable regulatory guidelines. If the Company or the Bank ceases to meet these requirements, the Federal Reserve Board may impose corrective capital and/or managerial requirements and place limitations on the Company’s ability to conduct the broader financial activities permissible for financial holding companies. In addition, if the deficiencies persist, the Federal Reserve Board may require the Company to divest of the Bank. The Bank was categorized as "well-capitalized" and "well-managed" as of December 31, 2023.

Bank holding companies may acquire banks and other bank holding companies located in any state in the United States without regard to geographic restrictions or reciprocity requirements imposed by state banking law. Banks may also establish interstate branch networks through acquisitions of and mergers with other banks. The establishment of de novo interstate branches or the acquisition of individual branches of a bank in another state (rather than the acquisition of an out-of-state bank in its entirety) is allowed only if specifically authorized by state law.

Michigan banking laws do not significantly restrict interstate banking. The Michigan Banking Code permits, in appropriate circumstances and with the approval of DIFS, (1) acquisition of Michigan banks by FDIC-insured banks, savings banks or savings and loan associations located in other states, (2) sale by a Michigan bank of branches to an FDIC-insured bank, savings bank or savings and loan association located in a state in which a Michigan bank could purchase branches of the purchasing entity, (3) consolidation of Michigan banks and FDIC-insured banks, savings banks or savings and loan associations located in other states having laws permitting such consolidation, (4) establishment of branches in Michigan by FDIC-insured banks located in other states, the District of Columbia or U.S. territories or protectorates having laws permitting a Michigan bank to establish a branch in such jurisdiction, and (5) establishment by foreign banks of branches located in Michigan.

Banks are subject to the provisions of the Community Reinvestment Act ("CRA"). Under the terms of the CRA, the appropriate federal bank regulatory agency is required, in connection with its examination of a bank, to assess the bank's record in meeting the credit needs of the community served by that bank, including low- and moderate-income neighborhoods, consistent with the safe and sound operation of the institution. Under the CRA, institutions are assigned a rating of "outstanding," "satisfactory," "needs to improve," or "substantial non-compliance." The regulatory agency's assessment of the bank's record is made available to the public. Further, a bank's federal regulatory agency is required to assess the CRA compliance record of any bank that has applied to establish a new branch office that will accept deposits, relocate an office, or merge or consolidate with, or acquire the assets or assume the liabilities of, a federally regulated financial institution. In the case of a bank holding company applying for approval to acquire a bank or another bank holding company, the Federal Reserve Board will assess the CRA compliance record of each subsidiary bank of the applicant bank holding company, and such compliance records may be the basis for denying the application. Upon receiving notice that a subsidiary bank is rated less than "satisfactory," a financial holding company will be prohibited from additional activities that are permitted to be conducted by a financial holding company and from acquiring any company engaged in such activities. The CRA rating of the Bank was "Satisfactory" as of its most recent examination.

Effects of Compliance With Environmental Regulations

The nature of the business of the Bank is such that it holds title, on a temporary or permanent basis, to a number of parcels of real property. These include properties owned for branch offices and other business purposes as well as properties taken in or in lieu of foreclosure to satisfy loans in default. Under current state and federal laws, present and past owners of real property may be exposed to liability for the cost of cleanup of environmental contamination on or originating from those properties, even if they are wholly innocent of the actions that caused the contamination. These liabilities can be material and can exceed the value of the contaminated property. Management is not presently aware of any instances where compliance with these provisions will have a material effect on the capital expenditures, earnings or competitive position of the Company or the Bank, or where compliance with these provisions will adversely affect a borrower's ability to comply with the terms of loan contracts.

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Employees

As of February 29, 2024, the Company, on a consolidated basis, employed 389 employees, of which 324 were full-time employees. Our employees are not represented by any collective bargaining group. Management considers its employee relations to be good.

Statistical Information

Additional statistical information describing the business of the Company appears on the following pages and in Management's Discussion and Analysis of Financial Condition and Results of Operations in Item 7 of this report and in the Consolidated Financial Statements and the notes thereto in Item 8 of this report. The following statistical information should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations and the Consolidated Financial Statements and notes in this report. Average balances used in statistical information are calculated using daily averages, unless otherwise specified.

The Company did not hold investment securities from any one issuer at December 31, 2023, that were greater than 10% of the Company's shareholders' equity, exclusive of U.S. Government and U.S. Government agency securities.

Presented below is the fair value of securities available for sale and amortized cost for held to maturity securities as of December 31, 2023, a schedule of maturities of securities as of December 31, 2023, and the weighted average yields of securities as of December 31, 2023. Callable securities in the money are presumed called and matured at the callable date.

	Available for Sale Securities maturing within:
																	Fair Value
	Less than				1 Year -				5 Years -				More than				at December 31,
(Dollars in thousands)	1 Year				5 Years				10 Years				10 Years				2023
U.S. Government and federal agency	$	-			$	-			$	-			$	-			$	-
U.S. Treasury notes and bonds		-				63,692				16,502				-				80,194
State and municipal		250				18,502				139,613				76,317				234,682
Corporate		-				-				204				-				204
Asset-backed securities		-				8,015				3,002				-				11,017
Total debt securities		250				90,209				159,321				76,317				326,097
Mortgage-backed securities		19,941				58,858				91,029				18,673				188,501
Total Available for Sale	$	20,191			$	149,067			$	250,350			$	94,990			$	514,598

	Available for Sale weighted average yields:
	Less than				1 Year -				5 Years -				More than
	1 Year				5 Years				10 Years				10 Years				Total
U.S. Government and federal agency		-		%		-		%		-		%		-		%		-		%
U.S. Treasury notes and bonds		-				1.16				1.16				-				1.16
State and municipal		3.60				2.87				2.46				2.50				2.51
Corporate		-				-				3.75				-				3.75
Asset-backed securities		-				5.95				6.09				-				5.99
Mortgage-backed securities		3.62				3.09				3.36				1.67				3.14

Security yields are shown before the impact of interest rate swaps. ChoiceOne holds pay fixed, receive variable swaps with a notional value of $201.0 million which effect the interest earned on securities. Further details can be found in Note 8 - Derivatives and Hedging Activities.

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	Held to Maturity Securities maturing within:
																	Amortized Cost
	Less than				1 Year -				5 Years -				More than				at December 31,
(Dollars in thousands)	1 Year				5 Years				10 Years				10 Years				2023
U.S. Government and federal agency	$	-			$	2,972			$	-			$	-			$	2,972
U.S. Treasury notes and bonds		-				-				-				-				-
State and municipal		1,039				9,407				104,631				81,021				196,098
Corporate		-				-				20,013				-				20,013
Asset-backed securities		547				-				-				-				547
Total debt securities		1,586				12,379				124,644				81,021				219,630
Mortgage-backed securities		18,815				24,911				144,603				-				188,329
Total Held to Maturity	$	20,401			$	37,290			$	269,247			$	81,021			$	407,959

	Held to Maturity weighted average yields:
	Less than				1 Year -				5 Years -				More than
	1 Year				5 Years				10 Years				10 Years				Total
U.S. Government and federal agency		-		%		1.61		%		-		%		-		%		1.61		%
U.S. Treasury notes and bonds		-				-				-				-				-
State and municipal		1.59				1.93				2.10				2.44				2.23
Corporate		-				-				4.01				-				4.01
Asset-backed securities		1.10				-				-				-				1.10
Mortgage-backed securities		5.89				4.23				2.24				-				2.87

Weighted average yields are calculated based on the fair value of securities available for sale and amortized cost of securities held to maturity which are denoted in the table above. Weighted average yields for tax-exempt securities is computed on a fully tax-equivalent basis at an incremental tax rate of 21% for 2023.

Maturities and Sensitivities of Loans to Changes in Interest Rates

The following schedule presents the maturities of loans as of December 31, 2023. Loans are also classified according to the sensitivity to changes in interest rates as of December 31, 2023.

(Dollars in thousands)	In one year				After one year				After five years				After fifteen
	or less				through five years				through fifteen years				years				Total
Agricultural	$	14,718			$	18,282			$	13,881			$	2,329			$	49,210
Commercial and industrial		83,051				83,154				57,845				5,865				229,915
Commercial real estate		52,171				479,395				247,733				7,622				786,921
Construction real estate		19,272				1,112				-				552				20,936
Consumer		1,354				20,538				12,472				2,177				36,541
Residential real estate		1,997				11,898				111,325				142,510				267,730
Loans to other financial institutions		19,400				-				-				-				19,400
Totals	$	191,963			$	614,379			$	443,256			$	161,055			$	1,410,653

(Dollars in thousands)	Fixed or				Floating or
	predetermined rates				variable rates				Total
Loans maturing after one year:
Agricultural	$	31,506			$	2,986			$	34,492
Commercial and industrial		123,854				23,010				146,864
Commercial real estate		574,872				159,878				734,750
Construction real estate		1,664				-				1,664
Consumer		34,701				486				35,187
Residential real estate		128,867				136,866				265,733
Loans to other financial institutions		-				-				-
Totals	$	895,464			$	323,226			$	1,218,690

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Loan maturities are classified according to the contractual maturity date or the anticipated amortization period, whichever is appropriate. The anticipated amortization period is used in the case of loans where a balloon payment is due before the end of the loan’s normal amortization period. At the time the balloon payment is due, the loan can either be rewritten or payment in full can be requested. The decision regarding whether the loan will be rewritten or a payment in full will be requested will be based upon the loan’s payment history, the borrower’s current financial condition, and other relevant factors.

The following table reflects the composition of our allowance for credit losses, non-accrual loans, and nonperforming loans as a percentage of total loans represented by each class of loans as of the dates indicated:

(Dollars in thousands)	Agricultural				Commercial and industrial				Consumer				Commercial real estate				Construction real estate				Residential real estate				Loans to other financial institutions			Totals
Loans
December 31, 2023	$	49,210			$	229,915			$	36,541			$	786,921			$	20,936			$	267,730			$	19,400		$	1,410,653
Allowance for credit losses year ended December 31, 2023	$	94			$	2,216			$	823			$	8,820			$	58			$	3,644			$	30		$	15,685
Allowance as a percentage of loan category		0.19	%			0.96	%			2.25	%			1.12	%			0.28	%			1.36	%			0.15	%		1.11	%
Nonaccrual loans year ended December 31, 2023	$	-			$	1			$	-			$	-			$	-			$	1,722			$	-		$	1,723
Nonaccrual as a percentage of loan category		0.00	%			0.00	%			0.00	%			0.00	%			0.00	%			0.64	%			0.00	%		0.12	%
Allowance as a percentage of nonaccrual loans	NA				NA				NA				NA				NA					211.61	%		NA				910.33	%
Nonperforming loans year ended December 31, 2023	$	-			$	61			$	-			$	-			$	-			$	1,851			$	-		$	1,912
Nonperforming loans as a percentage of loan category		0.00	%			0.03	%			0.00	%			0.00	%			0.00	%			0.69	%			0.00	%		0.14	%
Net deposit charge-offs during the year ended December 31, 2023	$	-			$	-			$	(226	)		$	-			$	-			$	-			$	-		$	(226	)
Net loan charge-offs during the year ended December 31, 2023	$	-			$	(92	)		$	(45	)		$	13			$	-			$	(14	)		$	-		$	(138	)
Net charge-offs during the year ended December 31, 2023	$	-			$	(92	)		$	(271	)		$	13			$	-			$	(14	)		$	-		$	(364	)
Net charge-offs during the year to average loans outstanding		0.00	%			-0.01	%			-0.02	%			0.00	%			0.00	%			0.00	%			0.00	%		-0.03	%

(Dollars in thousands)	Agricultural				Commercial and industrial				Consumer				Commercial real estate				Construction real estate				Residential real estate				Loans to other financial institutions			Totals
Loans
December 31, 2022	$	64,159			$	210,210			$	39,808			$	630,953			$	14,736			$	229,916			$	-		$	1,189,782
Allowance for loan losses year ended December 31, 2022 (1)	$	144			$	1,361			$	310			$	4,822			$	63			$	906			$	-		$	7,619
Allowance as a percentage of loan category		0.22	%			0.65	%			0.78	%			0.76	%			0.43	%			0.39	%			0.00	%		0.64	%
Nonaccrual loans year ended December 31, 2022	$	-			$	-			$	-			$	-			$	-			$	1,263			$	-		$	1,263
Nonaccrual as a percentage of loan category		0.00	%			0.00	%			0.00	%			0.00	%			0.00	%			0.55	%			0.00	%		0.11	%
Allowance as a percentage of nonaccrual loans	NA				NA				NA				NA				NA					71.73	%		NA				603.25	%
Nonperforming loans year ended December 31, 2022	$	3			$	58			$	-			$	131			$	-			$	2,475			$	-		$	2,667
Nonperforming loans as a percentage of loan category		0.00	%			0.03	%			0.00	%			0.02	%			0.00	%			1.08	%			0.00	%		0.22	%
Net deposit charge-offs during the year ended December 31, 2022	$	-			$	-			$	(246	)		$	-			$	-			$	-			$	-		$	(246	)
Net loan charge-offs during the year ended December 31, 2022	$	-			$	(34	)		$	(44	)		$	3			$	-			$	2			$	-		$	(73	)
Net charge-offs during the year ended December 31, 2022	$	-			$	(34	)		$	(290	)		$	3			$	-			$	2			$	-		$	(319	)
Net charge-offs during the year to average loans outstanding		0.00	%			0.00	%			-0.03	%			0.00	%			0.00	%			0.00	%			0.00	%		-0.03	%

(1) - The total allowance for loan losses on December 31, 2022 includes $13,000 of unallocated reserve which was zero at December 31, 2023.

NA – No non-accrual loans in the loan category.

Additions to the allowance for credit losses charged to operations during the periods shown were based on management’s judgment after considering the factors laid out in Note 1 “Allowance for Credit Losses” to the consolidated financial statements. ChoiceOne

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adopted the Financial Accounting Standards Board (the "FASB") Account Standards Update 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments , commonly referred to as "CECL" effective January 1, 2023 using the modified retrospective method for all financial assets measured at amortized cost and off-balance sheet credit exposures. Results for reporting periods beginning after January 1, 2023 are presented under CECL while prior period amounts are reported in accordance with the incurred loss accounting standard. The transition adjustment of the CECL adoption included an increase in the ACL of $7.2 million. The evaluation of the loan portfolio is based upon various risk factors such as the financial condition of the borrower, the value of collateral, reasonable and supportable forecasts, and other considerations, which, in the opinion of management, deserve current recognition in estimating credit losses.

The following schedule presents an allocation of the allowance for credit losses to the various loan categories as of the years ended December 31:

	2023				2022				2021
Agricultural	$	94			$	144			$	448
Commercial and industrial		2,216				1,361				1,454
Real estate - commercial		8,820				4,822				3,705
Real estate - construction		58				63				110
Real estate - residential		3,644				906				628
Consumer		823				310				290
Loans to other financial institutions		30				-				43
Unallocated		-				13				1,010
Total allowance for loan losses	$	15,685			$	7,619			$	7,688

Deposits

The following schedule presents the average deposit balances by category and the average rates paid thereon for the respective years:

(Dollars in thousands)
	2023									2022									2021
	Average Balance				Average Rate					Average Balance				Average Rate					Average Balance				Average Rate
Noninterest-bearing demand	$	546,926				-		%		$	582,992				-		%		$	527,876				-		%
Interest-bearing demand and money market deposits		852,927				1.18					902,090				0.39					791,886				0.23
Savings		370,074				0.43					452,542				0.16					398,969				0.14
Certificates of deposit		342,043				3.46					196,166				0.83					186,898				0.51
Total	$	2,111,970				1.11		%		$	2,133,790				0.27		%		$	1,905,629				0.17		%

Amount of time deposits in uninsured accounts (Dollars in thousands)
Maturing in less than 3 months	$	43,227
Maturing in 3 to 6 months		70,248
Maturing in 6 to 12 months		73,553
Maturing in more than 12 months		12,655
Total uninsured time deposits	$	199,683

At December 31, 2023, the aggregate balance of all deposits exceeding the FDIC insured limit of $250,000 for individual and $500,000 for joint accounts totaled $769.7 million, or 36.3% of total deposits, compared to $823.2 million, or 38.9% of total deposits and $889.3 million, or 43.3% of total deposits at December 31, 2022 and 2021, respectively. Certificate of Deposit Account Registry Service ("CDARs") deposits are excluded from the above table as all CDARs deposits are 100% guaranteed.

Core deposits, which we define as insured branch deposits less certificates of deposit, totaled $1.1 billion or 53.2% of total deposits at December 31, 2023.

At December 31, 2023, the Bank had no material foreign deposits.

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Return on Equity and Assets

The following schedule presents certain financial ratios of the Company for the years ended December 31:

	2023				2022				2021
Return on assets (net income divided by average total assets)		0.85		%		1.00		%		1.02		%
Return on equity (net income divided by average equity)		12.00		%		13.25		%		9.79		%
Dividend payout ratio (dividends declared per share divided by net income per share)		37.21		%		32.06		%		32.67		%
Equity to assets ratio (average equity divided by average total assets)		7.11		%		7.52		%		10.44		%

Item 1A. Risk Factors

The Company is subject to many risks and uncertainties. Although the Company seeks ways to manage these risks and develop programs to control risks to the extent that management can control them, the Company cannot predict the future. Actual results may differ materially from management’s expectations. Some of these significant risks and uncertainties are discussed below. The risks and uncertainties described below are not the only ones that the Company faces. Additional risks and uncertainties of which the Company is unaware, or that it currently does not consider to be material, also may become important factors that affect the Company and its business. If any of these risks were to occur, the Company’s business, financial condition or results of operations could be materially and adversely affected.

Risks Related to the Company ’ s Business

Asset quality could be less favorable than expected.

A significant source of risk for the Company arises from the possibility that losses will be sustained because borrowers, guarantors and related parties may fail to perform in accordance with the terms of their loan agreements. Most loans originated by the Company are secured, but some loans are unsecured depending on the nature of the loan. With respect to secured loans, the collateral securing the repayment of these loans includes a wide variety of real and personal property that may be insufficient to cover the obligations owed under such loans. Collateral values may be adversely affected by changes in prevailing economic, environmental and other conditions, including declines in the value of real estate, changes in interest rates, changes in monetary and fiscal policies of the federal government, terrorist activity, environmental contamination, public health crisis, and other external events.

The Company’s allowance for credit losses may not be adequate to cover actual credit losses.

The risk of nonpayment of loans is inherent in all lending activities and nonpayment of loans may have a material adverse effect on the Company’s earnings and overall financial condition, and the value of its common stock. The Company makes various assumptions and judgments about the collectability of its loan portfolio and provides an allowance for potential losses based on a number of factors. If its assumptions are wrong, the allowance for credit losses may not be sufficient to cover losses, which could have an adverse effect on the Company’s operating results and may cause it to increase the allowance in the future. The actual amount of future provisions for credit losses cannot now be determined and may exceed the amounts of past provisions for credit losses. Federal and state banking regulators, as an integral part of their supervisory function, periodically review the allowance for credit losses. These regulatory agencies may require the Company to increase its provision for credit losses or to recognize further loan charge-offs based upon their judgments, which may be different from the Company’s judgments. Any increase in the allowance for credit losses could have a negative effect on the Company’s regulatory capital ratios, net income, financial condition and results of operations.

The Current Expected Credit Loss ( " CECL " ) accounting standard could add volatility to our allowance for credit losses and may have an adverse effect on our financial condition and results of operations.

Effective January 1, 2023, we adopted CECL. CECL changed the allowance for credit losses methodology from an incurred loss impairment methodology to an expected loss methodology, which is more dependent on future economic forecasts, assumptions and models than the incurred loss accounting standard and could result in increases in, and add volatility to, our allowance for credit losses and future provisions for credit losses. These forecasts, assumptions and models are by their nature uncertain and are based upon management’s reasonable judgment in light of information currently available.

General economic conditions in the state of Michigan could have a material adverse effect on the Company ’ s results of operations or financial condition.

The Company is affected by general economic conditions in the United States, although most directly within Michigan. An economic downturn within Michigan caused by inflation, recession or a recessionary environment, unemployment, changes in financial or capital

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markets or other factors, could negatively impact household and corporate incomes. This impact may lead to decreased demand for both loan and deposit products and increase the number of customers who fail to pay interest or principal on their loans.

The Company could be adversely affected by the soundness of other financial institutions, including defaults by larger financial institutions.

The Company's ability to engage in routine funding transactions could be adversely affected by the actions and commercial soundness of other financial institutions. Financial services institutions are interrelated as a result of credit, trading, clearing, counterparty or other relationships between financial institutions. The Company has exposure to multiple counterparties, and it routinely executes transactions with counterparties in the financial industry. As a result, defaults by, or even rumors or questions about, one or more financial services institutions, or the financial services industry generally, could lead to market-wide liquidity problems and losses or defaults by the Company or by other institutions. This is sometimes referred to as "systemic risk" and may adversely affect financial intermediaries, such as clearing agencies, clearing houses, banks, securities firms and exchanges, with which the Company interacts on a daily basis, and therefore could adversely affect the Company.

If the Company does not adjust to changes in the financial services industry, its financial performance may suffer.

The Company’s ability to maintain its financial performance and return on investment to shareholders will depend in part on its ability to maintain and grow its core deposit customer base and expand its financial services to its existing customers. In addition to other banks, competitors include credit unions, securities dealers, brokers, mortgage bankers, investment advisors, internet banks and other financial technology companies, and finance and insurance companies. The increasingly competitive environment is, in part, a result of changes in the economic environment within the state of Michigan, regulation, changes in technology and product delivery systems and consolidation among financial service providers. New competitors may emerge to increase the degree of competition for the Company’s customers and services. Financial services and products are also constantly changing. The Company’s financial performance will also depend in part upon customer demand for the Company’s products and services and the Company’s ability to develop and offer competitive financial products and services.

We are subject to significant government regulation, and any regulatory changes may adversely affect us.

We are subject to extensive government regulation under both federal and state law. We are subject to regulation by the Federal Reserve, the FDIC and the DIFS, in addition to other regulatory and self-regulatory organizations. Current laws and applicable regulations are subject to change and any new regulatory change could make compliance more expensive, difficult, or otherwise adversely affect our business. Specifically, regulation changes to overdraft fees could adversely affect our business. We cannot predict the ultimate effect of any changes to regulations affecting us, but such changes could have a material adverse effect on our results of operation or financial condition.

Changes in interest rates could reduce the Company’s income and cash flow.

The Company’s income and cash flow depends, to a great extent, on the difference between the interest earned on loans and securities, and the interest paid on deposits and other borrowings. Market interest rates are beyond the Company’s control, and they fluctuate in response to general economic conditions and the policies of various governmental and regulatory agencies including, in particular, the Federal Reserve Board. Changes in monetary policy, including changes in interest rates and interest rate relationships, will influence the origination of loans, the purchase of investments, the generation of deposits and the rate received on loans and securities and paid on deposits and other borrowings.

The Company is subject to liquidity risk in its operations, which could adversely affect its ability to fund various obligations.

Liquidity risk is the possibility of being unable to meet obligations as they come due or capitalize on growth opportunities as they arise because of an inability to liquidate assets or obtain adequate funding on a timely basis, at a reasonable cost and within acceptable risk tolerances. Liquidity is required to fund various obligations, including credit obligations to borrowers, loan originations, withdrawals by depositors, repayment of debt, dividends to shareholders, operating expenses and capital expenditures. Liquidity is derived primarily from retail deposit growth and earnings retention, principal and interest payments on loans and investment securities, net cash provided from operations and access to other funding. If the Company is unable to maintain adequate liquidity, then its business, financial condition and results of operations would be negatively affected.

If the Company were required to sell investment securities in an unrealized loss position to meet liquidity needs and realize losses, that could have a material adverse impact on its results of operation and financial condition.

At December 31, 2023, the Company had $128.9 million in unrealized losses on its investment securities, including $69.7 million in unrealized losses on available for sale securities and $59.2 in unrealized losses on held to maturity securities. If the Company were required to sell investment securities in an unrealized loss position to meet liquidity needs and realize losses, that could have a material

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adverse impact on its results of operations and financial condition, including a negative impact on net income and a permanent reduction in equity capital. The issuers continue to make timely principal and interest payments on the bonds. The fair value is expected to recover as the bonds approach maturity.

Evaluation of investment securities for an allowance for credit losses involves subjective determinations and could have a material adverse impact on our results of operations and financial condition.

The fair value evaluation of investment securities is a quantitative and qualitative process, which is subject to risks and uncertainties and is intended to determine whether declines in the fair value of investments require the establishment of an allowance for credit losses. The risks and uncertainties include changes in general economic conditions, the issuer’s financial condition or future recovery prospects and the effects of changes in interest rates or credit spreads. Estimating future cash flows involves incorporating information received from third-party sources and making internal assumptions and judgments regarding the future performance of the underlying collateral and assessing the probability that an adverse change in future cash flows has occurred. The determination of an allowance for credit losses is based upon our periodic evaluation and assessment of known and inherent risks associated with the respective asset class. Such evaluations and assessments are revised as conditions change and new information becomes available. Our management considers a wide range of factors about the security issuer and uses reasonable judgment in evaluating the cause of the decline in the estimated fair value of the security and in assessing the prospects for recovery. Inherent in management’s evaluation of the security are assumptions and estimates about the operations of the issuer and its future earnings potential. Additions to the allowance for credit losses for our investment securities may need to be taken in the future, which could have a material adverse effect on our results of operations and financial condition.

The Company has significant exposure to risks associated with commercial and residential real estate.

A substantial portion of the Company’s loan portfolio consists of commercial and residential real estate-related loans, including real estate development, construction and residential and commercial mortgage loans. As of December 31, 2023, the Company had approximately $807.9 million of commercial and construction real estate loans outstanding, which represented approximately 57.3% of its loan portfolio. As of that same date, the Company had approximately $267.7 million in residential real estate loans outstanding, or approximately 19.0% of its loan portfolio. Consequently, real estate-related credit risks are a significant concern for the Company. The adverse consequences from real estate-related credit risks tend to be cyclical and are often driven by national economic developments that are not controllable or entirely foreseeable by the Company or its borrowers.

Commercial loans may expose the Company to greater financial and credit risk than other loans.

The Company’s commercial and industrial loan portfolio, including commercial mortgages, was approximately $229.9 million at December 31, 2023, comprising approximately 16.3% of its total loan portfolio. Commercial loans generally carry larger loan balances and can involve a greater degree of financial and credit risk than other loans. Any significant failure to pay on time by the Company’s customers would hurt the Company’s earnings. The increased financial and credit risk associated with these types of loans are a result of several factors, including the concentration of principal in a limited number of loans and borrowers, the size of loan balances, the effects of general economic conditions on income-producing properties and the increased difficulty of evaluating and monitoring these types of loans.

Legislative or regulatory changes or actions could adversely impact the Company or the businesses in which it is engaged.

The Company and the Bank are subject to extensive state and federal regulation, supervision and legislation that govern almost all aspects of their operations. Laws and regulations may change from time to time and are primarily intended for the protection of consumers, depositors and the deposit insurance fund, and not to benefit the Company’s shareholders. The impact of any changes to laws and regulations or other actions by regulatory agencies may negatively impact the Company or its ability to increase the value of its business. Regulatory authorities have extensive discretion in connection with their supervisory and enforcement activities, including the imposition of restrictions on the operation of an institution, the classification of assets by the institution and the adequacy of an institution’s allowance for credit losses. Future regulatory changes or accounting pronouncements may increase the Company’s regulatory capital requirements or adversely affect its regulatory capital levels. Additionally, actions by regulatory agencies against the Company or the Bank could require the Company to devote significant time and resources to defending its business and may lead to penalties that materially affect the Company.

The Company relies heavily on its management and other key personnel, and the loss of any of them may adversely affect its operations.

The Company is and will continue to be dependent upon the services of its management team and other key personnel. Losing the services of one or more key members of the Company’s management team could adversely affect its operations.

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The Company ’ s controls and procedures may fail or be circumvented.

Management regularly reviews and updates the Company’s internal controls, disclosure controls and procedures, and corporate governance policies and procedures. Any system of controls, however well designed and operated, is based in part on certain assumptions and can provide only reasonable, not absolute, assurances that the objectives of the system are met. If the Company fails to identify and remediate control deficiencies, it is possible that a material misstatement of interim or annual financial statements will not be prevented or detected on a timely basis. In addition, any failure or circumvention of the Company’s other controls and procedures or failure to comply with regulations related to controls and procedures could have a material adverse effect on the Company’s business, results of operations and financial condition.

The Company may be a defendant in a variety of litigation and other actions, which may have a material adverse effect on the Company’s financial condition and results of operations.

The Company and the Bank are regularly involved in a variety of litigation arising out of the normal course of business. The Company’s insurance may not cover all claims that may be asserted against it, and any claims asserted against it, regardless of merit or eventual outcome, may harm its reputation or cause the Company to incur unexpected expenses, which could be material in amount. Should the ultimate expenses, judgments or settlements in any litigation exceed the Company’s insurance coverage, they could have a material adverse effect on the Company’s financial condition and results of operations. In addition, the Company may not be able to obtain appropriate types or levels of insurance in the future, nor may it be able to obtain adequate replacement policies with acceptable terms, if at all.

If the Company cannot raise additional capital when needed, its ability to further expand its operations through organic growth or acquisitions could be materially impaired.

The Company is required by federal and state regulatory authorities to maintain specified levels of capital to support its operations. The Company may need to raise additional capital to support its current level of assets or its growth. The Company’s ability to raise additional capital will depend on conditions in the capital markets at that time, which are outside its control, and on its financial performance. The Company cannot assure that it will be able to raise additional capital in the future on terms acceptable to it or at all. If the Company cannot raise additional capital when needed, its ability to maintain its current level of assets or to expand its operations through organic growth or acquisitions could be materially limited.

Unauthorized disclosure of sensitive or confidential client or customer information, whether through a breach of computer systems or otherwise, could severely harm the Company’s business.

As part of its business, the Company collects, processes and retains sensitive and confidential client and customer information on behalf of itself and other third parties. Despite the security measures the Company has in place for its facilities and systems, and the security measures of its third party service providers, the Company may be vulnerable to security breaches, acts of vandalism, computer viruses, misplaced or lost data, programming and/or human errors or other similar events. Any security breach involving the misappropriation, loss or other unauthorized disclosure of confidential customer information, whether by the Company or by its vendors, could severely damage the Company’s reputation, expose it to the risks of litigation and liability, disrupt the Company’s operations and have a material adverse effect on the Company’s business.

The Company's information systems may experience an interruption or breach in security.

The Company relies heavily on communications and information systems to conduct its business and deliver its products. Any failure, interruption or breach in security of these systems could result in failures or disruptions in the Company’s customer relationship management, general ledger, deposit, loan and other systems. While the Company has policies and procedures designed to prevent or limit the effect of the failure, interruption or security breach of its information systems, there can be no assurance that any such failures, interruptions or security breaches of the Company’s information systems or its customers’ information or computer systems would not damage the Company’s reputation, result in a loss of customer business, subject the Company to additional regulatory scrutiny, or expose the Company to civil litigation and financial liability, any of which could have a material adverse effect on the Company’s financial condition and results of operations.

Cybersecurity incidents could disrupt business operations, result in the loss of critical and confidential information, and adversely impact our reputation and results of operations.

Global cybersecurity threats and incidents can range from uncoordinated individual attempts to gain unauthorized access to information technology (IT) systems to sophisticated and targeted measures known as advanced persistent threats, directed at the Company and/or its third party service providers. Although we employ comprehensive measures to prevent, detect, address and mitigate these threats (including access controls, employee training, data encryption, vulnerability assessments, continuous monitoring of our IT networks and systems and maintenance of backup and protective systems), cybersecurity incidents, depending on their nature and scope, could

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potentially result in the misappropriation, destruction, corruption or unavailability of critical data and confidential or proprietary information (our own or that of third parties) and the disruption of business operations. The potential consequences of a material cybersecurity incident include reputational damage, litigation with third parties and increased cybersecurity protection and remediation costs, which in turn could materially adversely affect our results of operations.

Employee misconduct could adversely impact our reputation and results of operations.

Our reputation is crucial to maintaining and developing relationships with our customers. There is a risk our employees could engage in misconduct that adversely affects our business. For example, if an employee were to engage (or be accused of engaging) in fraudulent, illegal, or suspicious activities, including fraud or theft, we could be subject to regulatory sanctions or penalties, or litigation, and suffer significant harm to our reputation, financial position, and customer relationships as a result. Additionally, our business often requires that we deal with sensitive customer information. If our employees were to improperly use or disclose this information, even inadvertently, we could suffer significant harm to our reputation, financial position and current and future business relationships. We may not be able to deter all employee misconduct, and the precautions we take to detect and prevent this misconduct may not be effective in all circumstances. Misconduct or harassment by our employees (or unsubstantiated allegations of the same), or improper use or disclosure of confidential information by our employees, even inadvertently, could result in a material adverse effect on our business, reputation, or results of operations.

Environmental liability associated with commercial lending could result in losses.

In the course of its business, the Company may acquire, through foreclosure, properties securing loans it has originated or purchased that are in default. Particularly in commercial real estate lending, there is a risk that hazardous substances could be discovered on these properties. In this event, the Company might be required to remove these substances from the affected properties at the Company’s sole cost and expense. The cost of this removal could substantially exceed the value of affected properties. The Company may not have adequate remedies against the prior owner or other responsible parties and could find it difficult or impossible to sell the affected properties. These events could have an adverse effect on the Company’s business, results of operations and financial condition.

The Company depends upon the accuracy and completeness of information about customers.

In deciding whether to extend credit to customers, the Company relies on information provided to it by its customers, including financial statements and other financial information. The Company may also rely on representations of customers as to the accuracy and completeness of that information and on reports of independent auditors on financial statements. The Company’s financial condition and results of operations could be negatively impacted to the extent that the Company extends credit in reliance on financial statements that do not comply with generally accepted accounting principles or that are misleading or other information provided by customers that is false or misleading.

Our reliance on third party vendors could cause operational losses or business interruptions.

We rely on third party service providers for certain components of our business activity. If these third party service providers experience difficulties or terminate their services and we are unable to replace them with other service providers, our operations could be interrupted. Even if we are able to replace them with another service provider, the replacement may be more expensive or offer an inferior service. Any of these outcomes could have a material adverse effect on our business, financial condition or results of operations.

The Company operates in a highly competitive industry and market area.

The Company faces substantial competition in all areas of its operations from a variety of different competitors, many of which are larger and may have more financial resources. Such competitors primarily include national and regional banks within the various markets where the Company operates, as well as internet banks and other financial technology companies. The Company also faces competition from many other types of financial institutions, including savings and loan associations, credit unions, finance companies, brokerage firms, insurance companies and other financial intermediaries. The financial services industry could become even more competitive as a result of legislative, regulatory and technological changes and continued consolidation. Banks, securities firms and insurance companies can merge under the umbrella of a financial holding company, which can offer virtually any type of financial service, including banking, securities underwriting, insurance (both agency and underwriting) and merchant banking. The Company competes with these institutions both in attracting deposits and in making new loans. Technology has lowered barriers to entry into the market and made it possible for non-banks to offer products and services traditionally provided by banks, such as automatic transfer and automatic payment systems. Many of the Company’s competitors have fewer regulatory constraints and may have lower cost structures, such as credit unions that are not subject to federal income tax. Due to their size, many competitors may be able to achieve economies of scale and, as a result, may offer a broader range of products and services as well as better pricing for those products and services than the Company can.

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Severe weather, natural disasters, acts of war or terrorism, a public health crisis, and other external events could significantly impact the Company’s business.

Severe weather, natural disasters, acts of war or terrorism, risks posed by an outbreak of a widespread epidemic or pandemic of disease (or widespread fear thereof) or other public health crisis, and other adverse external events could have a significant impact on the Company’s ability to conduct business. Such events could affect the stability of the Company’s deposit base, impair the ability of borrowers to repay outstanding loans, impair the value of collateral securing loans, cause significant property damage, result in loss of revenue and/or cause the Company to incur additional expenses.

The Company relies on dividends from the Bank for most of its revenue.

The Company is a separate and distinct legal entity from the Bank. It receives substantially all of its revenue from dividends from the Bank. These dividends are the principal source of funds to pay cash dividends on the Company’s common stock. Various federal and/or state laws and regulations limit the amount of dividends that the Bank may pay to the Company. If the Bank is unable to pay dividends to the Company, the Company may not be able to pay cash dividends on its common stock. The earnings of the Bank have been the principal source of funds to pay cash dividends to shareholders. Over the long-term, cash dividends to shareholders are dependent upon earnings, as well as capital requirements, regulatory restraints and other factors affecting the Company and the Bank.

Additional risks and uncertainties could have a negative effect on financial performance.

Additional factors could have a negative effect on the financial performance of the Company and the Company’s common stock. Some of these factors are financial market conditions, changes in financial accounting and reporting standards, new litigation or changes in existing litigation, regulatory actions and losses.

Risks Related to the Company ’ s Common Stock

Investments in the Company ’ s common stock involve risk.

The market price of the Company’s common stock may fluctuate significantly in response to a number of factors, including:

The Company’s common stock, while publicly traded, has less liquidity than the average liquidity of stocks listed on the Nasdaq Stock Market.

The Company’s common stock is listed for trading on the Nasdaq Capital Market. However, the Company’s common stock has less liquidity than the average liquidity for companies listed in the Nasdaq Stock Market. The public trading market for the Company’s common stock depends on a marketplace of willing buyers and sellers at any given time, which in turn depends on factors outside of the Company’s control, including general economic and market conditions and the decisions of individual investors. The limited market for the Company’s common stock may affect a shareholder’s ability to sell their shares at any given time, and the sale of a large number of shares at one time could temporarily adversely affect the market price of our common stock.

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The Company's common stock is not insured by any government entity.

The Company’s common stock is not insured by the FDIC or any other government entity. Investment in the Company’s common stock is subject to risk and potential loss.

A shareholder’s ownership of common stock may be diluted if the Company issues additional shares of common stock in the future.

The Company’s articles of incorporation authorize the Company’s Board of Directors to issue additional shares of common stock or preferred stock without shareholder approval. To the extent the Company issues additional shares of common stock or preferred stock, or issues options or warrants permitting the holder to purchase or acquire common stock in the future and such warrants or options are exercised, the Company’s shareholders may experience dilution in their ownership of the Company’s common stock. Holders of the Company’s common stock do not have any preemptive or similar rights to purchase a pro rata share of any additional shares offered or issued by the Company.

The value of the Company's common stock may be adversely affected if the Company issues debt and equity securities that are senior to the Company's common stock in liquidation or as to distributions.

The Company may increase its capital by issuing debt or equity securities or by entering into debt or debt-like financing. This may include the issuance of common stock, preferred stock, senior notes, or subordinated notes. Upon any liquidation of the Company, the Company’s lenders and holders of its debt securities would be entitled to distribution of the Company’s available assets before distributions to the holders of the Company’s common stock, and holders of preferred stock may be granted rights to similarly receive a distribution upon liquidation prior to distribution to holders of the Company’s common stock. The Company cannot predict the amount, timing or nature of any future debt financings or stock offerings, and the decision of whether to incur debt or issue securities will depend on market conditions and other factors beyond the Company’s control. Future offerings could dilute a shareholder’s interests in the Company or reduce the per-share value of the Company’s common stock.

The Company's articles of incorporation and bylaws, and certain provisions of Michigan law, contain provisions that could make a takeover effort more difficult.

The Michigan Business Corporation Act, and the Company’s articles of incorporation and bylaws, include provisions intended to protect shareholders and prohibit, discourage, or delay certain types of hostile takeover activities. In addition, federal law requires the Federal Reserve Board’s prior approval for acquisition of “control” of a bank holding company such as the Company, including acquisition of 10% or more of the Company’s outstanding securities by any person not defined as a company under the Bank Holding Company Act of 1956, as amended (the “BHC Act”). These provisions and requirements could discourage potential acquisition proposals, delay or prevent a change in control, diminish the opportunities for a shareholder to participate in tender offers, prevent transactions in which our shareholders might otherwise receive a premium for their shares, or limit the ability for our shareholders to approve transactions that they may believe to be in their best interests.

An entity or group holding a certain percentage of the Company's outstanding securities could become subject to regulation as a "bank holding company" or may be required to obtain prior approval of the Federal Reserve Board.

Any bank holding company or foreign bank with a presence in the United States may be required to obtain approval of the Federal Reserve Board under the BHC Act to acquire or retain 5% or more of the Company’s outstanding securities. Further, if any entity (including a “group” comprised of individual persons) owns or controls the power to vote 25% or more of the Company’s outstanding securities, or 5% or more of the outstanding securities if the entity otherwise exercises a “controlling influence” over the Company, the entity may become subject to regulation as a “bank holding company” under the BHC Act. An entity that is subject to regulation as a bank holding company would be subject to regulatory and statutory obligations and restrictions, and could be required to divest all or a portion of the entity’s investment in the Company’s securities or in other investments that are not permitted for a bank holding company.

Item 1B. Unreso lved Staff Comments

None.

Item 1C. Cybersecurity

Our bank faces various cybersecurity threats, including unauthorized access, malware, and phishing attacks. These threats could compromise the security of our information systems and the data we store and process. While we have experienced, and expect to continue to experience, cybersecurity threats, we have not experienced a material cybersecurity incident in the three year period ended December 31, 2023. The potential consequences of a material cybersecurity incident could include reputational damage, litigation with

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third parties, regulatory criticism or proceedings and increased cybersecurity protection and remediation costs, which in turn could materially adversely affect our results of operations.

We have established an information security third party risk management program to identify and manage these risks. This program includes regular risk assessments, third party risk provider reviews, and implementation of security measures such as encryption and firewalls, and ongoing monitoring of our systems for potential threats. We also engage with industry consultants to assist with our risk assessments.

On a regular basis, the technology steering committee, led by management, receives comprehensive reports summarizing cybersecurity threat monitoring and incident management activities. These reports also include details about remediation efforts to address identified threats and incidents. Additionally, both internal and external assessments of our company’s cybersecurity threat monitoring capabilities are shared with the committee. Meeting minutes from these committee sessions are diligently maintained and provided to the Board of Directors.

The Board of Directors has responsibility for approving and overseeing management’s policies related to information system security and cybersecurity threats and incidents. They also supervise management’s overall approach to securing the company’s information systems. The Board of Directors delegates the oversight of cybersecurity risk management to the Information Technology Committee of the Board.

The Information Technology Committee, in turn, reviews reports on our cybersecurity risk management processes. These reports cover assessments of management’s handling of cybersecurity threats and incident management functions. The committee receives periodic updates from the chief information officer, including information on social engineering risks, the effectiveness of cybersecurity training, and results from vulnerability and penetration assessments conducted both internally and by external parties. Audit reports related to information systems and cybersecurity threat monitoring are also part of this reporting process.

Item 2. Prope rties

The Company’s headquarters are located at 109 East Division, Sparta, Michigan 49345. The headquarters location is owned by the Company and is not subject to any mortgage.

29 of the Company’s 35 locations are designed for use and operation as a bank, are well maintained, and are suitable for current operations. The remaining six locations are comprised of loan production offices and wealth management. Offices generally range in size from 1,200 to 3,200 square feet, based on the location and number of employees located at the facility. All of our offices are owned by the Bank except for six that are leased under various operating lease agreements. The Company’s management believes all offices are adequately covered by property insurance.

Item 3. Legal P roceedings

As of December 31, 2023, there were no significant pending legal proceedings to which the Company or the Bank is a party or to which any of their properties were subject, except for legal proceedings arising in the ordinary course of business. In the opinion of management, pending legal proceedings will not have a material adverse effect on the consolidated financial condition of the Company.

Item 4. M ine Safety Disclosures

Not applicable.

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PART II

Item 5. Mar ket for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Stock Information

The Company’s common stock is traded on the NASDAQ Capital Market under the symbol COFS.

As of February 29, 2024, there were approximately 1,122 owners of record and approximately 1,093 beneficial owners of our common stock.

The following table summarizes the quarterly cash dividends declared per share of common stock during 2023 and 2022:

		2023				2022
First Quarter		$	0.26			$	0.25
Second Quarter			0.26				0.25
Third Quarter			0.26				0.25
Fourth Quarter			0.27				0.26
Total		$	1.05			$	1.01

ChoiceOne’s principal source of funds to pay cash dividends is the earnings and dividends paid by the Bank. The Bank is restricted in its ability to pay cash dividends under current banking regulations. See Note 21 – Regulatory Capital to the consolidated financial statements for a description of these restrictions. Based on information presently available, management expects ChoiceOne to declare and pay regular quarterly cash dividends in 2024, although the amount of the quarterly dividends will be dependent on market conditions and ChoiceOne’s requirements for cash and capital, among other things.

Information regarding the Company’s equity compensation plans may be found in Item 12 of this report and is here incorporated by reference.

ISSUER PURCHASES OF EQUITY SECURITIES

ChoiceOne’s common stock repurchase plan announced in April 2021 and amended in 2022, authorizes the repurchase of up to 375,388 shares, representing 5% of the total outstanding shares of common stock as of the date the plan was adopted. No shares were repurchased under this plan in 2023.

										Total Number				Maximum
										of Shares				Number of
		Total								Purchased as				Shares that
		Number				Average				Part of a				May Yet be
		of Shares				Price Paid				Publicly				Purchased
Period		Purchased				per Share				Announced Plan				Under the Plan
October 1 - October 31, 2023
Employee Transactions			—			$	—				—
Repurchase Plan			—			$	—				—				375,388
November 1 - November 30, 2023
Employee Transactions			—			$	—				—
Repurchase Plan			—			$	—				—				375,388
December 1 - December 31, 2023			—
Employee Transactions (1)			6,853			$	31.07				6,853
Repurchase Plan			—			$	—				—				375,388

(1) Shares submitted for the purchase of stock options. Stock options were issued out of the ChoiceOne Financial Services, Inc. Stock Incentive Plan of 2012.

As of December 31, 2023, there were 375,388 shares remaining that may yet be repurchased under the plan. There was no stated expiration date.

Item 6. Res erved

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Item 7. Manag ement's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion is designed to provide a review of the consolidated financial condition and results of operations of ChoiceOne Financial Services, Inc. (“ChoiceOne” or the “Company”), and its wholly-owned subsidiaries. This discussion should be read in conjunction with the consolidated financial statements and related footnotes.

We have omitted discussion of 2022 results where it would be redundant to the discussion previously included in Part II, Item 7 of our 2022 Annual Report on Form 10-K.

Selected Financial Data

(Dollars in thousands, except per share data)
		2023				2022				2021
For the year
Net interest income		$	65,885			$	67,314			$	60,641
Provision for credit losses, net			150				250				416
Noninterest income			14,906				14,072				19,194
Noninterest expense			55,074				53,478				52,921
Income before income taxes			25,567				27,658				26,498
Income tax expense			4,306				4,018				4,456
Net income			21,261				23,640				22,042
Cash dividends declared			7,910				7,578				7,200
Per share
Basic earnings		$	2.82			$	3.15			$	2.87
Diluted earnings			2.82				3.15				2.86
Cash dividends declared			1.05				1.01				0.94
Shareholders' equity (at year end)			25.92				22.47				29.52
Average for the year
Securities		$	1,042,559			$	1,094,559			$	869,788
Gross loans			1,265,261				1,104,030				1,040,430
Deposits			2,111,970				2,133,790				1,905,629
Borrowings			141,507				13,537				5,465
Subordinated debt			35,382				35,211				12,841
Shareholders' equity			177,201				178,415				225,120
Assets			2,493,840				2,373,374				2,156,774
At year end
Securities		$	939,576			$	972,802			$	1,116,265
Gross loans			1,415,363				1,194,616				1,068,831
Deposits			2,122,055				2,118,003				2,052,294
Borrowings			200,000				50,000				50,000
Subordinated debt			35,507				35,262				35,017
Shareholders' equity			195,634				168,874				221,669
Assets			2,576,706				2,385,915				2,366,682
Selected financial ratios
Return on average assets			0.85		%		1.00		%		1.02		%
Return on average shareholders' equity			12.00				13.25				9.79
Cash dividend payout as a percentage of net income			37.21				32.06				32.67
Shareholders' equity to assets (at year end)			7.59				7.08				9.37

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RESULTS OF OPERATIONS

Summary

ChoiceOne's net income for 2023 was $21.3 million, compared to $23.6 million in 2022. Diluted earnings per share were $2.82 in the twelve months ended December 31, 2023, compared to $3.15 per share in the twelve months ended December 31, 2022.

ChoiceOne's asset mix has shifted from loans held for investment of 56.2% of deposits at December 31, 2022 to 66.5% of deposits at December 31, 2023. Total assets increased by $190.8 million in the twelve months ended December 31, 2023. As a result of the change in asset mix and increase in total assets, interest income increased $23.9 million in the twelve months ended December 31, 2023, compared to the same period in 2022. This increase was driven by core loan growth of $201.5 million or 16.9%, which was partially offset by a decrease in investment securities of $33.2 million. Loans to other financial institutions, consisting of a warehouse line of credit, increased $19.4 million during the full year 2023.

Deposits, excluding brokered deposits, decreased $17.7 million or 0.8% as of December 31, 2023 compared to December 31, 2022. The decrease in deposits since December 31, 2022 was largely concentrated in the first quarter of 2023 as a result of a combination of customers using cash on hand for debt payoffs, seasonal tax and municipal bond payments, and customers seeking higher rates in money market securities or other investments. Deposits grew in the third and fourth quarters of 2023 due to new business, recapture of deposit losses, and some seasonality in municipal balances. ChoiceOne continues to be proactive in managing its liquidity position by using brokered deposits, the Bank Term Funding Program ("BTFP"), and FHLB advances to ensure ample liquidity. At December 31, 2023, total available borrowing capacity from all sources was $933.3 million.

The increase in short term interest rates has led to higher deposit costs, which rose to 1.14% in 2023 compared to 0.27% in 2022 as deposits reprice and customers shift to CD and other interest bearing products. This trend is likely to persist. ChoiceOne is taking active measures to control these costs and expects to continue to pay lower rates on deposits than the federal funds rate. Interest expense on borrowings for the twelve months ended December 31, 2023, increased $7.2 million, compared to the same period in the prior year, due to increases in borrowing amounts and interest rates. Borrowings include $170 million from the BTFP and $30 million of FHLB borrowings at a weighted average fixed rate of 4.7%. Total cost of funds increased to 1.44% in 2023 compared to 0.35% in 2022.

ChoiceOne adopted CECL effective January 1, 2023 using the modified retrospective method for all financial assets measured at amortized cost and off-balance sheet credit exposures. Results for reporting periods beginning after January 1, 2023 are presented under CECL while prior period amounts are reported in accordance with the incurred loss accounting standard. The transition adjustment of the CECL adoption included an increase in the ACL of $7.2 million, which included a $5.5 million decrease to the retained earnings account to reflect the cumulative effect of adopting CECL on our Consolidated Balance Sheet, with the $1.5 million tax impact portion being recorded as part of the deferred tax asset in other assets on our Consolidated Balance Sheet. The transition adjustment of the CECL adoption included an additional ACL on unfunded commitments of $3.3 million, which included a $2.6 million decrease to the retained earnings account to reflect the cumulative effect of adopting CECL on our Consolidated Balance Sheet, with the $688,000 tax impact portion being recorded as part of the deferred tax asset in other assets on our Consolidated Balance Sheet.

The provision for credit losses expense on loans was $1.3 million in the full year 2023, due to the significant growth of core loans. Core loan growth was offset by improvements in the Federal Open Market Committee ("FOMC") forecast and certain payoffs of watch loans during the full year 2023. The ratio of the allowance for credit losses to total loans (excluding loans held for sale) was 1.11% on December 31, 2023 compared to 1.24% on January 1, 2023. Asset quality continues to remain strong, with annualized net loan charge-offs to average loans of 0.03% and nonperforming loans to total loans (excluding loans held for sale) of 0.14% as of December 31, 2023.

Purchased loans carry approximately $2.5 million of accretable yield, which will be recognized into income over the remaining life of the loans, approximately two to four years.

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Noninterest Income

Noninterest income rose by $834,000 in the twelve months ended December 31, 2023, compared to the same period in the prior year. The increase was largely due to reduced losses on the sale of securities and a decline in the change in market value of equity securities. This was partially offset by the decline in gains on sales of loans in 2023 compared to 2022. With the rapid rise in interest rates, mortgage refinancing activity slowed in 2023 and the rate environment for purchased mortgage loans became increasingly competitive. In addition, ChoiceOne recorded a BOLI claim of $274,000 in December of 2022, which was not repeated in 2023.

Noninterest Expense

Noninterest expense increased $1.6 million or 3.0% in the twelve months ended December 31, 2023 compared to the same period in 2022. The increase in total noninterest expense was largely related to inflationary pressures on employee wages and benefits and increases to FDIC insurance, partially offset by lower occupancy and data processing costs. As part of its ongoing optimization strategy, ChoiceOne intends to consolidate two of its branches by March 2024. Customers who currently use these branches will be able to access nearby ChoiceOne locations that offer the same level of service and convenience. ChoiceOne anticipates a low impact on customer retention and expects to save around $700,000 annually from this decision. Management continues to seek out ways to manage costs, but also recognizes the value of investing in innovation and attracting the best talent in our industry to compete effectively in our markets.

Dividends

Cash dividends of $7.9 million or $1.05 per common share were declared in 2023 compared to $7.6 million or $1.01 per common share in 2022. The dividend yield for ChoiceOne’s common stock was 3.58% as of the end of 2023, compared to 3.48% as of the end of 2022. The cash dividend payout as a percentage of net income was 37% as of December 31, 2023, compared to 32% as of December 31, 2022.

Income Taxes

Income tax expense was $288,000 higher in 2023 than in 2022. The effective tax rate was 16.8% for the year ended 2023 compared to 14.5% for the same period in 2022. During 2023, nontaxable municipal interest decreased and disallowed interest expense increased compared to the year ended 2022. For further details, refer to Note 12 - Income Taxes of the Notes to the Consolidated Financial Statements included in Item 8 of this report.

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Table 1 – Average Balances and Tax-Equivalent Interest Rates

Tables 1 and 2 on the following pages provide information regarding interest income and expense for the years ended December 31, 2023, 2022, and 2021. Table 1 documents ChoiceOne’s average balances and interest income and expense, as well as the average rates earned or paid on assets and liabilities. Table 2 documents the effect on interest income and expense of changes in volume (average balance) and interest rates.

		Year Ended December 31,
		2023												2022												2021
(Dollars in thousands)		Average												Average												Average
		Balance				Interest				Rate				Balance				Interest				Rate				Balance				Interest				Rate
Assets:
Loans (1) (3)(4)(5)(6)		$	1,265,261			$	68,437				5.41		%	$	1,104,030			$	52,861				4.79		%	$	1,040,430			$	48,672				4.62		%
Taxable securities (2)(6)			747,006				21,169				2.83				779,915				15,583				2.00				599,902				10,260				2.13
Nontaxable securities (1)			295,553				7,106				2.40				314,644				7,790				2.48				269,886				7,098				3.02
Other			70,826				3,797				5.36				34,255				491				1.43				68,879				84				0.37
Interest-earning assets			2,378,646				100,509				4.23				2,232,844				76,725				3.44				1,979,097				66,114				3.83
Noninterest-earning assets			115,194												140,530												177,677
Total assets		$	2,493,840											$	2,373,374											$	2,156,774
Liabilities and Shareholders' Equity:
Interest-bearing demand deposits		$	852,927			$	10,028				1.18		%	$	902,090			$	3,514				0.39		%	$	791,886			$	1,797				0.23		%
Savings deposits			370,074				1,609				0.43				452,542				711				0.16				398,969				551				0.14
Certificates of deposit			306,999				10,621				3.46				196,063				1,618				0.83				186,898				957				0.51
Brokered deposit			35,044				1,732				4.94				103				2				2.48				-				-				0.00
Borrowings			141,507				6,818				4.82				13,537				410				3.02				5,465				101				1.86
Subordinated debentures			35,382				1,636				4.62				35,211				1,491				4.23				12,841				571				4.45
Other			12,258				651				5.31				-				-				0.00				-				-				0.00
Interest-bearing liabilities			1,754,191				33,095				1.89				1,599,546				7,746				0.48				1,396,059				3,977				0.28
Demand deposits			546,926												582,992												527,876
Other noninterest-bearing liabilities			15,522												12,421												7,719
Total liabilities			2,316,639												2,194,959												1,931,654
Shareholders' equity			177,201												178,415												225,120
Total liabilities and shareholders' equity		$	2,493,840											$	2,373,374											$	2,156,774
Net interest income (tax-equivalent basis) (Non-GAAP) (1)						$	67,415											$	68,979											$	62,137
Net interest margin (tax-equivalent basis) (Non-GAAP) (1)											2.83		%										3.09		%										3.14		%
Reconciliation to Reported Net Interest Income
Net interest income (tax-equivalent basis) (Non-GAAP) (1)						$	67,415											$	68,979											$	62,137
Adjustment for taxable equivalent interest							(1,530	)											(1,665	)											(1513	)
Net interest income (GAAP)						$	65,885											$	67,314											$	60,624
Net interest margin (GAAP)											2.77		%										3.01		%										3.08		%

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Table 2 – Changes in Tax-Equivalent Net Interest Income

		Year Ended December 31,
(Dollars in thousands)		2023 Over 2022												2022 Over 2021
		Total				Volume				Rate				Total				Volume				Rate
Increase (decrease) in interest income (1)
Loans (2)		$	15,576			$	8,264			$	7,312			$	4,189			$	3,026			$	1,163
Taxable securities			5,586				(682	)			6,268				5,323				3,410				1,913
Nontaxable securities (2)			(684	)			(455	)			(229	)			692				1,126				(434	)
Other			3,306				925				2,381				407				(62	)			469
Net change in interest income		$	23,784			$	8,052			$	15,732			$	10,611			$	7,500			$	3,111
Increase (decrease) in interest expense (1)
Interest-bearing demand deposits		$	6,514			$	(202	)		$	6,716			$	1,717			$	279			$	1,438
Savings deposits			898				(152	)			1,050				159				79				80
Certificates of deposit			9,003				1,364				7,639				664				50				614
Brokered deposit			1,730				1,725				5				-				-				-
Borrowings			6,408				6,029				379				309				217				92
Subordinated debentures			145				7				138				920				948				(28	)
Other			651				651				-				-				-				-
Net change in interest expense		$	25,349			$	9,422			$	15,927			$	3,769			$	1,573			$	2,196
Net change in tax-equivalent net interest income		$	(1,565	)		$	(1,370	)		$	(195	)		$	6,841			$	5,927			$	915

Net Interest Income

Tax-equivalent net interest income declined $1.6 million for the full year 2023, compared to the same period in 2022. The Federal Reserve increased the federal funds rate by 5.25% from March 31, 2022 to September 30, 2023 in response to published inflation rates. This increased rates on newly originated loans and rates paid on deposits and led to a net decline in tax equivalent net interest margin of 26 basis points in 2023 compared to 2022. GAAP based net interest margin declined 24 basis points in 2023 compared to 2022.

The following table presents the cost of deposits and the cost of funds for the years ended December 31, 2023, December 31, 2022, and December 31, 2021.

		Year Ended December 31,
		2023				2022				2021
Cost of deposits			1.14	%			0.27	%			0.17	%
Cost of funds			1.44	%			0.35	%			0.21	%

ChoiceOne has experienced substantial core loan growth from December 31, 2022 to December 31, 2023, leading to an increase in interest income from loans of $15.6 million in the twelve months ended December 31, 2023, compared to the same period in the prior year. Average core loans grew $161.2 million for the twelve months ended December 31, 2023, compared to the same period in the prior year. In addition, the average rate earned on loans increased 62 basis points for the twelve months ended December 31, 2023, compared to the same period in the prior year. The increase in interest income from loans and the average rate increase on loans was muted by a decline in PPP fees and an increase in expense related to derivatives in the twelve months ended December 31, 2023, compared to the same period in 2022. PPP fee income in 2023 was $0 compared to $1.2 million in 2022. Interest income on loans for 2023 was reduced by $2.1 million due to amortization expense related to the March 2023 sale of the pay floating swap derivative.

The average balance of total securities decreased $52.0 million in 2023, compared to the same period in 2022. The decrease was due to the paydowns, maturities, and redemptions during 2023. The average rate earned on securities increased 58 basis points for the full year

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2023, compared to the same period in the prior year. Interest income on securities for 2023 was reduced by $709,000 due to amortization expense related to the March 2023 sale of the pay floating swap derivative.

Interest expense increased $25.3 million for the full year 2023, compared to the same period in the prior year. The average rate paid on interest bearing-demand deposits and savings deposits increased 64 basis points in the twelve months ended December 31, 2023, compared to the same period in the prior year. This was offset by the decline in the average balance of interest bearing-demand deposits and savings deposits, of $131.6 million during 2023. The increase in the average balance of certificates of deposit of $110.9 million during 2023, combined with a 263 basis point increase in the rate paid on certificates of deposits during 2023, compared to the same period in the prior year, led to an increase in interest expense of $9.0 million during 2023.

In order to bolster liquidity, ChoiceOne borrowed $170.0 million from the Bank Term Funding Program ("BTFP") during the second and fourth quarter of 2023 and currently holds $23.4 million in brokered deposits and $30.0 million in FHLB advances on December 31, 2023. The net effect of these additional borrowed funds and brokered deposits was an increase in interest expense of $8.1 million for the year ended December 31, 2023, compared to the same period in 2022.

In September 2021, ChoiceOne completed a private placement of $32.5 million in aggregate principal amount of 3.25% fixed-to-floating rate subordinated notes due 2031. In addition, ChoiceOne holds certain subordinated debentures issued in connection with a trust preferred securities offering that were obtained as part of the merger with Community Shores. The average balance of subordinated debentures was relatively flat in 2023 compared to the same period in the prior year.

Provision and Allowance For Credit Losses

Table 3 – Provision and Allowance For Credit Losses

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(Dollars in thousands)
		2023				2022				2021
Allowance for credit losses at beginning of year		$	7,619			$	7,688			$	7,593
Cumulative effect of change in accounting principle			7,165				-				-
Charge-offs:
Agricultural			-				-				-
Commercial and industrial			158				177				195
Consumer			554				496				370
Real estate - commercial			-				-				111
Real estate - construction			-				-				-
Real estate - residential			27				-				-
Total			739				673				676
Recoveries:
Agricultural			-				-				-
Commercial and industrial			66				143				86
Consumer			283				206				214
Real estate - commercial			13				3				48
Real estate - construction			-				-				-
Real estate - residential			13				2				7
Total			375				354				355
Net charge-offs (recoveries)			364				319				321
Provision for credit losses			1,265				250				416
Allowance for credit losses at end of year		$	15,685			$	7,619			$	7,688
Allowance for credit losses as a percentage of:
Total loans as of year end			1.11		%		0.64		%		0.76		%
Nonaccrual loans, accrual loans past due 90 days or more and troubled debt restructurings			820		%		286		%		139		%
Ratio of net charge-offs during the period to average loans outstanding during the period			0.03		%	0.03			%	0.03			%
Loan recoveries as a percentage of prior year's charge-offs			56		%	52			%	47			%

On January 1, 2023, ChoiceOne adopted ASU 2016-13 CECL which caused an increase in the allowance for credit losses ("ACL") of $7.2 million. The large increase was partially due to the economic environment and the nature of the CECL calculation. Approximately 20% of this increase was related to the migration of purchased loans into the portfolio assessed by the CECL calculation. ChoiceOne also booked a liability for expected credit losses on unfunded loans and other commitments of $3.3 million related to the adoption of CECL. These unfunded loans are open credit lines with current customers and loans approved by ChoiceOne but not funded. The increase in the ACL and the cost of the liability resulted in a decrease in the retained earnings account on our Consolidated Balance Sheet equal to the after-tax impact, with the tax impact portion being recorded in deferred taxes in our Consolidated Balance Sheet in accordance with FASB guidance.

The ACL consists of general and specific components. The general component covers loans collectively evaluated for credit loss and is based on peer historical loss experience adjusted for current and forecasted factors. Management's adjustment for current and forecasted factors is based on trends in delinquencies, trends in charge-offs and recoveries, trends in the volume of loans, changes in underwriting standards, trends in loan review findings, the experience and ability of lending staff, and a reasonable and supportable economic forecast described further below.

The determination of our loss factors is based, in part, upon benchmark peer loss history adjusted for qualitative factors that, in management's judgment, affect the collectability of the portfolio as of the analysis date. ChoiceOne's lookback period of benchmark peer net charge-off history was from January 1, 2004 through December 31, 2019 for this analysis.

Loans individually evaluated for credit losses decreased by $767,000 to $2.1 million during the full year ended December 31, 2023, and the ACL related to these individually evaluated loans decreased by $93,000 during the same period largely due to the balance change and relationships that paid off in full during the fourth quarter of 2023.

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Nonperforming loans, which includes Other Real Estate Owned ("OREO") but excludes performing troubled loan modifications ("TLM") and troubled debt restructuring ("TDR") loans, remained historically low during 2023 and were $1.9 million as of December 31, 2023, compared to $1.3 million as of December 31, 2022. The ACL was 1.11% of total loans, excluding loans held for sale, at December 31, 2023, compared to 1.24% as of January 1, 2023 (the CECL adoption date) and 0.64% at December 31, 2022. The liability for expected credit losses on unfunded loans and other commitments was $2.2 million on December 31, 2023, compared to $3.3 million as of January 1, 2023 (the CECL adoption date).

Net charge-offs were $364,000 during the full year 2023, compared to net charge-offs of $319,000 during the same period in 2022. Net charge-offs for checking accounts during the full year 2023 were $226,000 compared to $246,000 for the same period in the prior year. Net charge-offs as a percentage of average loans were 0.03% during the full year 2023 and 2022.

The provision for credit losses was $1.3 million during the full year 2023, compared to $250,000 in the same period in the prior year. The provision expense was deemed necessary due to the impact of substantial core loan growth partially offset by improvements in the FOMC forecast for unemployment and GDP growth. The FOMC forecast for change in real GDP (2023) improved from 0.5% in December of 2022 to 2.6% in December of 2023 while the unemployment rate forecast (2023) improved from 4.6% in December 2022 to 3.8% in December 2023.

The loan provision expense was offset by the decrease in unfunded commitments provision expense of $1.1 million in the full year 2023 due to changes in mix and expected funding rates during the year. Total unfunded commitments decreased $17.6 million in the full year 2023 compared to January 1, 2023.

Net provision for credit losses was $150,000 for the full year 2023.

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Financial Condition

Summary

Total assets grew $190.8 million in the twelve months ended December 31, 2023. Core loans grew $201.5 million or 16.9% and were offset by a decline in investment securities of $33.2 million. Deposits, excluding brokered deposits, declined by $17.7 million during 2023, while borrowings increased by $150.0 million to fund loan demand and ensure ample liquidity. Deposit costs rose steadily during the year with larger increases coming in the second and third quarters as competition and rate increases amplified.

Securities

The Company’s securities balances as of December 31 were as follows:

(Dollars in thousands)
	2023				2022
Equity securities	$	7,505			$	8,566
Available for Sale Securities at fair value
U.S. Government and federal agency	$	-			$	-
U.S. Treasury notes and bonds		80,194				78,204
State and municipal		234,682				229,938
Mortgage-backed		188,501				208,563
Corporate		204				711
Asset-backed securities		11,017				12,333
Total	$	514,598			$	529,749
Held to Maturity Securities at amortized cost
U.S. Government and federal agency	$	2,972			$	2,966
U.S. Treasury notes and bonds		-				-
State and municipal		196,098				201,890
Mortgage-backed		188,329				200,473
Corporate		20,013				19,603
Asset-backed securities		547				974
Total	$	407,959			$	425,906

Total investment securities declined $34.2 million from December 31, 2022 to December 31, 2023. ChoiceOne purchased $7.1 million of securities in 2023. This was offset by the liquidation of $4.8 million in securities during 2023, resulting in a $71,000 realized loss. Securities totaling $11.5 million were called or matured in 2023. ChoiceOne received principal payments for municipal and mortgage-backed securities totaling $37.4 million during 2023.

At December 31, 2023, the Company had $128.9 million in unrealized losses on its investment securities, including $69.7 million in unrealized losses on available for sale securities and $59.2 million in unrealized losses on held to maturity securities. Unrealized losses on corporate and municipal bonds have not been recognized into income because management believes the issuers are of high credit quality, and management does not intend to sell prior to their anticipated recovery, and the decline in fair value is largely due to changes in interest rates and other market conditions. The issuers continue to make timely principal and interest payments on the bonds. The fair value is expected to recover as the bonds approach maturity.

ChoiceOne utilizes interest rate derivatives as part of its asset liability management strategy to help manage its interest rate risk position. In order to hedge the risk of rising rates and unrealized losses on securities resulting from the rising rates, ChoiceOne currently holds pay fixed, receive variable interest rate swaps with a total notional value of $401.0 million. These derivative instruments increase in value as long-term interest rates rise, which partially offsets the reduction in shareholders' equity due to unrealized losses on securities available for sale. Refer to Note 8 - Derivatives and Hedging Activities of the consolidated financial statements for more discussion on ChoiceOne’s derivative position.

Equity securities included a money market preferred security ("MMP") of $1.0 million and common stock of $6.5 million as of December 31, 2023. As of December 31, 2022, equity securities included a MMP of $1.0 million and common stock of $7.6 million. The decline compared to December 31, 2022 was due to the sale of an equity position during the third quarter.

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Per U.S. generally accepted accounting principles, unrealized gains or losses on securities available for sale are reflected on the balance sheet in accumulated other comprehensive income (loss), while unrealized gains or losses on securities held to maturity are not reflected on the balance sheet in accumulated other comprehensive income (loss).

Loans

The Company’s loan portfolio by call report code was as follows:

		December 31, 2023							December 31, 2022
(Dollars in thousands)	Call Report Codes	Balance			%				Balance			%
Construction & Development Loans	1A2		112,877			8.0	%			55,426			4.7	%
1-4 Family Loans	1A1, 1C1, 1C2A, 1C2B		347,036			24.6	%			287,208			24.1	%
Multifamily Loans	1D		56,563			4.0	%			44,053			3.7	%
Owner Occupied CRE Loans	1E1		281,515			20.0	%			266,652			22.4	%
Non-Owner Occupied CRE Loans	1E2		298,265			21.1	%			220,779			18.6	%
Commercial & Industrial Loans	2A2, 4A		219,849			15.6	%			205,117			17.2	%
Farm & Agriculture Loans	1B, 3		46,515			3.3	%			59,918			5.0	%
Consumer & Other Loans	6B, 6C, 6D, 8, 9b2,10B		48,033			3.4	%			50,629			4.3	%
Total Loans			1,410,653							1,189,782

Core loans, which exclude held for sale loans, and loans to other financial institutions, grew organically by $201.5 million in 2023. We have expanded our commercial lending team and improved our commercial loan process with automation. This has increased our commercial loan pipeline and growth. Our loan portfolio grew in various segments during 2023: non-owner occupied CRE loans ($77.5 million), 1-4 Family loans ($59.8 million), and construction & development loans ($57.5 million). The growth in non-owner occupied CRE loans came from our loan production offices in Holland, MI, Oakland, MI, Wyoming, MI and Macomb, MI, as experienced lenders were hired there in the past 18 months. CRE growth consisted of increases in seasoned hospitality groups, apartment buildings in the Grand Rapids, Michigan market, and professional office space in suburban areas with long-term leases and low loan to value ratios. 1-4 family loans grew as the 5/1 ARM product became popular as a mortgage option and it is less salable into the secondary market than more traditional mortgage options. The growth in construction and development loans included some apartment projects in Grand Rapids, Michigan, a healthy market with a low vacancy rate of 3.1% in 2023, according to Moody's Analytics REIS. These gains were partly offset by declines in farm & agricultural loans ($13.4 million) and consumer loans ($2.6 million) in the year ended December 31, 2023.

Loans to other financial institutions increased $19.4 million from December 31, 2022 to December 31, 2023. Loans to other financial institutions is comprised of a warehouse line of credit to facilitate mortgage loan originations, and interest rates fluctuate with the national mortgage market. This balance is short term in nature with an average life of under 30 days. Management believes the short-term structure and low credit risk of this asset is advantageous in the current rate environment. ChoiceOne had elected to suspend this program in 2022 and restarted the program in June of 2023. Since restarting the program, ChoiceOne has earned an interest rate of approximately 7.9% on loans to other financial institutions.

ChoiceOne recorded accretion income related to acquired loans in the amount of $1.7 million in 2023 and $2.0 million during 2022. Remaining credit and yield mark on acquired loans from the mergers with County Bank Corp. and Community Shores will accrete into income as the acquired loans mature. ChoiceOne estimates that roughly $2.5 million will accrete into income over the next two to four years.

As part of its review of the loan portfolio, management also monitors the various nonperforming loans. Nonperforming loans are comprised of loans accounted for on a nonaccrual basis, loans not included in nonaccrual loans, which are contractually past due 90 days or more as to interest or principal payments, and troubled loan modifications which are accruing and initiated in the past year. It is noted that prior to January 1, 2023, loans classified as troubled debt restructurings that were not performing as of December 31, 2022 are included in the table below.

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The balances of these nonperforming loans as of December 31 were as follows:

(Dollars in thousands)
	2023				2022
Loans accounted for on a nonaccrual basis	$	1,723			$	1,263
Loans contractually past due 90 days or more as to principal or interest payments		-				-
Loans modified to borrowers experiencing financial difficulty at December 31, 2023 and troubled debt restructurings as of December 31, 2022.		189				1,404
Total	$	1,912			$	2,667

Nonaccrual loans included $1.7 million in residential real estate loans as of December 31, 2023, compared to $1.3 million in residential real estate loans as of December 31, 2022. Loans considered troubled loan modifications which were not on a nonaccrual basis and were not 90 days or more past due as to principal or interest payments consisted of $60,000 in commercial and industrial loans and $129,000 in residential real estate loans at December 31, 2023, compared to troubled debt restructured loans which were not performing were $3,000 in agricultural loans, $58,000 in commercial and industrial loans, $131,000 in commercial real estate loans and $1.2 million in residential real estate loans at December 31, 2022.

Management also maintains a list of loans that are not classified as nonperforming loans but where some concern exists as to the borrowers’ abilities to comply with the original loan terms. There were 22 loans totaling $357,000 fitting this description as of December 31, 2023, and 10 loans totaling $180,000 fitting this description as of December 31, 2022.

Deposits and Other Funding Sources

The Company’s deposit balances as of December 31 were as follows:

(Dollars in thousands)
	2023				2022
Noninterest-bearing demand deposits	$	547,625			$	599,579
Interest-bearing demand deposits		599,681				638,641
Money market deposits		247,602				214,026
Savings deposits		336,851				427,583
Local certificates of deposit		366,851				236,431
Brokered certificates of deposit		23,445				1,743
Total deposits	$	2,122,055			$	2,118,003

Deposits, excluding brokered deposits, increased by $14.7 million or an annualized 2.8% in the fourth quarter of 2023 and decreased $17.7 million or 0.8% as of December 31, 2023 compared to December 31, 2022. The decrease in deposits since December 31, 2022 was largely concentrated in the first quarter of 2023 as a result of a combination of customers using cash on hand for debt payoffs, seasonal tax and municipal bond payments, and customers seeking higher rates in money market securities or other investments. Deposits grew in the third and fourth quarters of 2023 due to new business, recapture of deposit losses, and some seasonality in municipal balances. ChoiceOne continues to be proactive in managing its liquidity position by using brokered deposits, the Bank Term Funding Program ("BTFP"), and FHLB advances to ensure ample liquidity.

At December 31, 2023, total available borrowing capacity from all sources was $933.3 million. Total deposits exceeding the FDIC insured limit of $250,000 for individual and $500,000 for joint accounts were $769.7 million or 36.3% of deposits at December 31, 2023, compared to $823.2 million, or 38.9% of total deposits at December 31, 2022. Core deposits, which we define as insured branch deposits less certificates of deposit, totaled $823.2 million or 38.8% of total deposits at December 31, 2023.

The increase in short term interest rates has led to higher deposit costs, which rose to 1.57% in the last quarter of 2023, compared to 1.36% in the previous quarter and 0.47% in the fourth quarter of 2022. Deposit costs were 1.14% for the full year 2023, compared to 0.27% for the full year 2022, as deposits reprice and customers shift to CD and other interest bearing products. This trend is likely to persist. ChoiceOne is taking active measures to control these costs and expects to continue to pay lower rates on deposits than the federal funds rate. Interest expense on borrowings for the twelve months ended December 31, 2023, increased $7.2 million, compared to the same period in the prior year, due to increases in borrowing amounts and interest rates. Borrowings include $170 million from the BTFP and $30 million of FHLB borrowings at a weighted average fixed rate of 4.7% at December 31, 2023. Total cost of funds increased to

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1.91% in the fourth quarter of 2023 compared to 1.70% in the third quarter of 2023 and 0.59% in the fourth quarter of 2022. Total cost of funds was 1.44% for the full year 2023, compared to 0.35% for the full year 2022.

In September 2021, ChoiceOne completed a private placement of $32.5 million in aggregate principal amount of 3.25% fixed-to-floating rate subordinated notes due 2031. ChoiceOne used a portion of net proceeds from the private placement to redeem senior debt, fund common stock repurchases, and support bank-level capital ratios. ChoiceOne also holds $3.2 million in subordinated debentures issued in connection with a $4.5 million trust preferred securities offering, which were obtained in the merger with Community Shores, offset by the mark-to-market adjustment.

Shareholders’ Equity

Shareholders’ equity totaled $195.6 million as of December 31, 2023, up from $168.9 million as of December 31, 2022. This increase is due to retained earnings increasing $5.3 million due to earnings and a reduction in accumulated other compressive loss (AOCI) of $20.2 million. The improvement in AOCI, despite the rise in interest rates, is due to both the shortening duration and maturing (paydowns) of the securities portfolio, as well as an offsetting increase in unrealized gain of the pay-fixed swap derivatives. ChoiceOne Bank remains “well-capitalized” with a total risk-based capital ratio of 12.4% as of December 31, 2023, compared to 13.0% on December 31, 2022.

ChoiceOne uses interest rate swaps to manage interest rate exposure to certain fixed assets and variable rate liabilities. On December 31, 2023, ChoiceOne had pay-fixed interest rate swaps with a total notional value of $401.0 million, a weighted average coupon of 3.07%, a fair value of $8.9 million and an average contract length of 8 to 9 years. These derivative instruments increase in value as long-term interest rates rise, which partially offsets the reduction in equity due to unrealized losses on securities available for sale. Included in the total is $200.0 million of forward starting pay-fixed, receive floating interest rate swaps used to hedge interest bearing liabilities. These forward starting swaps will pay a fixed coupon of 2.75% while receiving SOFR starting in late April 2024. At the current SOFR rate of 5.38%, these forward starting swaps would contribute approximately $438,000 monthly starting in May 2024 which will partially offset interest expense. In addition, in March 2023, ChoiceOne eliminated all receive-fixed, pay floating swap agreements for a cash payment of $4.2 million. The loss is being amortized in interest income with an expense of approximately $273,000 monthly through April 2024, which was the remaining period of the agreements.

On January 1, 2023, ChoiceOne adopted ASU 2016-13 CECL which caused an increase in the ACL of $7.2 million and booked a liability for expected credit losses on unfunded loans and other commitments of $3.3 million. The increase in the ACL and the cost of the liability resulted in a decrease in retained earnings on our consolidated balance sheet equal to the after-tax impact, with the tax impact portion being recorded in deferred taxes in our consolidated balance sheet in accordance with FASB guidance.

Note 21 to the consolidated financial statements presents regulatory capital information for ChoiceOne and the Bank at the end of 2023 and 2022. Management will monitor these capital ratios during 2024 as they relate to asset growth and earnings retention. ChoiceOne’s Board of Directors and management do not plan to allow capital to decrease below those levels necessary to be considered "well capitalized" by regulatory guidelines.

Table 4 – Contractual Obligations

The following table discloses information regarding the maturity of ChoiceOne’s contractual obligations at December 31, 2023:

	Payment Due by Period
					Less												More
					than				1 - 3				3 - 5				than
(Dollars in thousands)	Total				1 year				Years				Years				5 Years
Time deposits	$	390,296			$	351,516			$	33,659			$	4,855			$	266
Borrowings		200,000				170,000				30,000				-				-
ChoiceOne Capital Trust (1)		4,500				-				-				-				4,500
ChoiceOne Subordinated Debenture (2)		32,500				-				-				-				32,500
Operating leases		777				314				398				65				-
Other obligations		94				51				20				18				5
Total	$	628,167			$	521,881			$	64,077			$	4,938			$	37,271

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Liquidity and Interest Rate Risk

Net cash provided by operating activities was $46.5 million in 2023 compared to $45.0 million in 2022. The change was due to lower net proceeds from loan sales and an increase in other assets in 2023 compared to 2022. Net cash used in investing activities was $181.4 million in 2023 compared to $90.5 million in 2022. ChoiceOne had loan originations and payments of $221.2 million in the full year 2023, compared to $130.6 million in the same period in the prior year. Net cash provided by financing activities was $146.4 million in 2023, compared to $57.5 million in 2022. ChoiceOne had net cash from borrowings of $150.0 million in the full year 2023, compared to $0 in the full year 2022.

ChoiceOne's market risk exposure occurs in the form of interest rate risk and liquidity risk. ChoiceOne's business is transacted in U.S. dollars with no foreign exchange risk exposure. Agricultural loans comprise a relatively small portion of ChoiceOne's total assets. Management believes that ChoiceOne's exposure to changes in commodity prices is insignificant.

Liquidity risk deals with ChoiceOne's ability to meet its cash flow requirements. These requirements include depositors desiring to withdraw funds and borrowers seeking credit. Longer-term liquidity needs may be met through core deposit growth, maturities of and cash flows from investment securities, normal loan repayments, advances from the FHLB and the Federal Reserve Bank, brokered certificates of deposit, and income retention. ChoiceOne had $170.0 million in outstanding borrowings from the Federal Reserve’s Bank Term Funding Program (BTFP) as of December 31, 2023 and $30.0 million in outstanding borrowings at the FHLB as of December 31, 2023. ChoiceOne elected to restructure the BTFP balance of $170 million in January 2024 in order to take advantage of lower rates and extend the maturity. The acceptance of brokered certificates of deposit is not limited as long as the Bank is categorized as “well capitalized” under regulatory guidelines. At December 31, 2023, total available borrowing capacity from the FHLB and the Federal Reserve Bank was $933.3 million.

ChoiceOne continues to review its liquidity management and has taken steps in an effort to ensure adequacy. These steps include limiting bond purchases in 2023, pledging securities to FHLB and the Federal Reserve Bank in order to increase borrowing capacity and using alternative funding sources such as brokered deposits.

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NON-GAAP FINANCIAL MEASURES

This report contains financial measures that are not defined in U.S. generally accepted accounting principles ("GAAP"). Management believes this non-GAAP financial measure provides additional information that is useful to investors in helping to understand the underlying financial performance of ChoiceOne.

Non-GAAP financial measures have inherent limitations. Readers should be aware of these limitations and should be cautious with respect to the use of such measures. To compensate for these limitations, we use non-GAAP measures as comparative tools, together with GAAP measures, to assist in the evaluation of our operating performance or financial condition. Also, we ensure that these measures are calculated using the appropriate GAAP or regulatory components in their entirety and that they are computed in a manner intended to facilitate consistent period-to-period comparisons. ChoiceOne’s method of calculating these non-GAAP financial measures may differ from methods used by other companies. These non-GAAP financial measures should not be considered in isolation or as a substitute for those financial measures prepared in accordance with GAAP or in-effect regulatory requirements.

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Critical Accounting Policies And Estimates

Management’s discussion and analysis of financial condition and results of operations as well as disclosures found elsewhere in this report are based upon the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. Material estimates that are particularly susceptible to significant change in the near-term relate to the determination of the market value of securities, the amount of the allowance for credit losses, loan servicing rights, carrying value of goodwill, and income taxes. Actual results could differ from those estimates.

Allowance for Credit Losses ("ACL")

In June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments. This ASU (as subsequently amended by ASU 2018-19) significantly changed how entities measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The standard replaced the former “incurred loss” approach with an “expected loss” model. The new model, referred to as the CECL model, applies to financial assets subject to credit losses and measured at amortized cost, and certain off-balance sheet credit exposures. The standard also expands the disclosure requirements regarding an entity’s assumptions, models, and methods for estimating the ACL. In addition, entities need to disclose the amortized cost balance for each class of financial asset by credit quality indicator, disaggregated by the year of origination. A reasonable and supportable economic forecast is a key component of the CECL methodology.

ChoiceOne adopted CECL effective January 1, 2023 using the modified retrospective method for all financial assets measured at amortized cost and off-balance sheet credit exposures. Results for reporting periods beginning after January 1, 2023 are presented under CECL while prior period amounts continue to be reported in accordance with the incurred loss accounting standards. The transition adjustment of the CECL adoption included an increase in the ACL of $7.2 million, which included a $5.5 million decrease to the retained earnings account to reflect the cumulative effect of adopting CECL on our Consolidated Balance Sheet, with the $1.5 million tax impact portion being recorded as part of the deferred tax asset in other assets on our Consolidated Balance Sheet. The transition adjustment of the CECL adoption included an additional ACL on unfunded commitments of $3.3 million, which included a $2.6 million decrease to the retained earnings account to reflect the cumulative effect of adopting CECL on our Consolidated Balance Sheet, with the $688,000 tax impact portion being recorded as part of the deferred tax asset in other assets on our Consolidated Balance Sheet.

The ACL is a valuation allowance for expected credit losses. The ACL is increased by the provision for credit losses and decreased by loans charged off less any recoveries of charged off loans. As ChoiceOne has had very limited loss experience since 2011, management elected to utilize benchmark peer loss history data to estimate historical loss rates. ChoiceOne identified an appropriate peer group for each loan cohort which shared similar characteristics. Management estimates the ACL required based on the selected peer group loan loss experience, the nature and volume of the loan portfolio, information about specific borrower situations and estimated collateral values, a reasonable and supportable economic forecast, and other factors. Allocations of the ACL may be made for specific loans, but the entire ACL is available for any loan that, in management’s judgment, should be charged off. Loan losses are charged against the ACL when management believes that collection of a loan balance is not possible.

The ACL consists of general and specific components. The general component covers loans collectively evaluated for credit losses and is based on peer historical loss experience adjusted for current and forecasted factors. Management's adjustment for current and forecasted factors is based on trends in delinquencies, trends in charge-offs and recoveries, trends in the volume of loans, changes in underwriting standards, trends in loan review findings, the experience and ability of lending staff, and a reasonable and supportable economic forecast described further below.

The discounted cash flow methodology is utilized for all loan pools. This methodology is supported by our CECL software provider and allows management to automatically calculate contractual life by factoring in all cash flows and adjusting them for behavioral and credit-related aspects.

Reasonable and supportable economic forecasts have to be incorporated in determining expected credit losses. The forecast period represents the time frame from the current period end through the point in time that we can reasonably forecast and support entity and environmental factors that are expected to impact the performance of our loan portfolio. Ideally, the economic forecast period would encompass the contractual terms of all loans; however, the ability to produce a forecast that is considered reasonable and supportable becomes more difficult or may not be possible in later periods. Subsequent to the end of the forecast period, we revert to historical loan data based on an ongoing evaluation of each economic forecast in relation to then current economic conditions as well as any developing loan loss activity and resulting historical data. As of December 31, 2023, we used a one-year reasonable and supportable economic forecast period, with a two year straight-line reversion period.

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We are not required to develop and use our own economic forecast model, and we elected to utilize economic forecasts from third-party providers that analyze and develop forecasts of the economy for the entire United States at least quarterly.

Other inputs to the calculation are also updated or reviewed quarterly. Prepayment speeds are updated on a one quarter lag based on the asset liability model from the previous quarter. This model is performed at the loan level. Curtailment is updated quarterly within the ACL model based on our peer group average. The reversion period is reviewed by management quarterly with consideration of the current economic climate. Prepayment speeds and curtailment were updated during the fourth quarter of 2023; however, the effect was insignificant.

We are also required to consider expected credit losses associated with loan commitments over the contractual period in which we are exposed to credit risk on the underlying commitments unless the obligation is unconditionally cancellable by us. Any allowance for off-balance sheet credit exposures is reported as an other liability on our Consolidated Balance Sheet and is increased or decreased via the provision for credit losses account on our Consolidated Statement of Income. The calculation includes consideration of the likelihood that funding will occur and forecasted credit losses on commitments expected to be funded over their estimated lives. The allowance is calculated using the same aggregate reserve rates calculated for the funded portion of loans at the portfolio level applied to the amount of commitments expected to be funded.

Loans that do not share risk characteristics are evaluated on an individual basis and are excluded from the collective evaluation. ChoiceOne has determined that any loans which have been placed on non-performing status, loans with a risk rating of 6 or higher, and loans past due more than 60 days will be assessed individually for evaluation. Management's judgment will be used to determine if the loan should be migrated back to pool on an individual basis. Individual analysis will establish a specific reserve for loans in scope. Specific reserves on non-performing loans are typically based on management’s best estimate of the fair value of collateral securing these loans, adjusted for selling costs as appropriate or based on the present value of the expected cash flows from that loan.

Allowance for Loan Losses

Prior to the adoption of CECL on January 1, 2023, management calculated the allowance for loan losses for the valuation allowance for probable incurred credit losses. The allowance for loan losses is increased by the provision for loan losses and decreased by loans charged off less any recoveries of charged off loans. Management estimates the allowance for loan losses balance required based on past loan loss experience, the nature and volume of the loan portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and other factors. Allocations of the allowance for loan losses may be made for specific loans, but the entire allowance for loan losses is available for any loan that, in management’s judgment, should be charged off. Loan losses are charged against the allowance for loan losses when management believes that collection of a loan balance is not possible.

The allowance for loan losses consists of general and specific components. The general component covers non-classified loans and is based on historical loss experience adjusted for current factors. The specific component relates to loans that are individually classified as impaired or loans otherwise classified as substandard or doubtful. The general component of management's estimate of the allowance for loan losses covers non-impaired loans and is based on historical loss experience adjusted for current factors. Management's adjustment for current factors is based on trends in delinquencies, trends in charge-offs and recoveries, trends in the volume of loans, changes in underwriting standards, trends in loan review findings, experience and ability of lending staff, national and economic trends and conditions, industry conditions, trends in real estate values, and other conditions.

A loan is impaired when full payment under the loan terms is not expected. Troubled debt restructuring of loans is undertaken to improve the likelihood that the loan will be repaid in full under the modified terms in accordance with a reasonable repayment schedule. All modified loans are evaluated to determine whether the loans should be reported as Troubled Debt Restructurings ("TDR"). A loan is a TDR when the Bank, for economic or legal reasons related to the borrower’s financial difficulties, grants a concession to the borrower by modifying a loan. To make this determination, the Bank must determine whether (a) the borrower is experiencing financial difficulties and (b) the Bank granted the borrower a concession. This determination requires consideration of all facts and circumstances surrounding the modification. An overall general decline in the economy or some deterioration in a borrower’s financial condition does not automatically mean the borrower is experiencing financial difficulties. Commercial loans are evaluated for impairment on an individual loan basis. If a loan is considered impaired or if a loan has been classified as a TDR, a portion of the allowance for loan losses is allocated to the loan so that it is reported, net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral. Large groups of smaller-balance homogeneous loans such as consumer and residential real estate mortgage loans are collectively evaluated for impairment and, accordingly, they are not separately identified for impairment disclosures.

Securities

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Securities Available for Sale – For securities AFS in an unrealized loss position, management determines whether they intend to sell or if it is more likely than not that ChoiceOne will be required to sell the security before recovery of the amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income with an allowance being established under CECL. For securities AFS with unrealized losses not meeting these criteria, management evaluates whether any decline in fair value is due to credit loss factors. In making this assessment, management considers any changes to the rating of the security by rating agencies and adverse conditions specifically related to the issuer of the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of the cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses (“ACL”) is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Changes in the ACL under ASC 326-30 are recorded as provisions for (or reversal of) credit loss expense. Losses are charged against the allowance when the collectability of a debt security AFS is confirmed or when either of the criteria regarding intent or requirement to sell is met. Any impairment that has not been recorded through an ACL is recognized in other comprehensive income, net of income taxes. At December 31, 2023 and at adoption of CECL on January 1, 2023, there was no ACL related to debt securities AFS. Accrued interest receivable on debt securities was excluded from the estimate of credit losses.

Securities Held to Maturity – Since the adoption of CECL, ChoiceOne measures credit losses on HTM securities on a collective basis by major security type with each type sharing similar risk characteristics, and considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. The ACL on securities HTM is a contra asset valuation account that is deducted from the carrying amount of HTM securities to present the net amount expected to be collected. HTM securities are charged off against the ACL when deemed uncollectible. Adjustments to the ACL are reported in ChoiceOne’s Consolidated Statements of Income in the provision for credit losses. Accrued interest receivable on HTM securities is excluded from the estimate of credit losses. With regard to US Treasury securities, these have an explicit government guarantee; therefore, no ACL is recorded for these securities. With regard to obligations of states and political subdivisions and other HTM securities, management considers (1) issuer bond ratings, (2) historical loss rates for given bond ratings, (3) the financial condition of the issuer, and (4) whether issuers continue to make timely principal and interest payments under the contractual terms of the securities. At December 31, 2023, the ACL related to securities HTM is insignificant.

Troubled Loan Modifications

FASB also issued ASU 2022-02, Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. This standard eliminated the previous accounting guidance for troubled debt restructurings and added additional disclosure requirements for gross chargeoffs by year of origination. It also prescribes guidance for reporting modifications of loans to borrowers experiencing financial difficulty.

Loan Servicing Rights

Loan servicing rights represent the estimated value of servicing loans that are sold with servicing retained by ChoiceOne and are initially recorded at estimated fair value. Servicing rights are expensed in proportion to, and over the period of, estimated net servicing revenues. Management’s accounting treatment of loan servicing rights is estimated based on current prepayment speeds that are typically market driven.

Management believes the accounting estimate related to loan servicing rights is a “critical accounting estimate” because (1) the estimate is highly susceptible to change from period to period because of significant changes within long-term interest rates affecting the prepayment speeds for current loans being serviced and (2) the impact of recognizing an impairment loss could have a material effect on ChoiceOne’s net income. Management has obtained a third-party valuation of its loan servicing rights to corroborate its current carrying value at the end of each reporting period.

Goodwill

Goodwill is not amortized but is evaluated annually for impairment and on an interim basis if events or changes in circumstances indicate that goodwill might be impaired. The goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount, and an impairment charge would be recognized for any amount by which the carrying amount exceeds the reporting unit’s fair value. Accounting pronouncements allow a company to first perform a qualitative assessment for goodwill prior to a quantitative assessment (Step 1 assessment). If the results of the qualitative assessment indicate that it is more likely than not that goodwill is impaired, then a quantitative assessment must be performed. If not, there is no further assessment required. The Company acquired Valley Ridge Financial Corp. in 2006, County Bank Corp in 2019, and Community Shores in 2020, which resulted in the recognition of goodwill of $13.7 million, $38.9 million and $7.3 million, respectively.

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During the prior year, ChoiceOne engaged a third party valuation firm to assist in performing a quantitative analysis of goodwill as of November 30, 2022 ("the valuation date"). In deriving the fair value of the reporting unit (the Bank), the third-party firm assessed general economic conditions and outlook; industry and market considerations and outlook; the impact of recent events to financial performance; the market price of ChoiceOne’s common stock and other relevant events. In addition, the valuation relied on financial projections through 2027 and growth rates prepared by management. Based on the valuation prepared, it was determined that ChoiceOne's estimated fair value of the reporting unit at the valuation date was greater than its book value and impairment of goodwill was not required.

Management concurred with the conclusion derived from the quantitative goodwill analysis as of the valuation date and determined that there were no material changes and that no triggering events had occurred that indicated impairment from the valuation date through December 31, 2023, and as a result that it is more likely than not that there was no goodwill impairment as of December 31, 2023.

The below table shows the inputs and assumptions addressed and the weight and nature of the impact to the analysis.

Relevant Events and Circumstances	Inputs and assumptions that most affect fair value	Weight of events and circumstances	Nature of impact (positive / neutral / negative)	Nature of evidence - subjective or objective
Macroeconomic conditions
Interest rate increases	Discount rate	High	Neutral	Subjective
Interest rate increases have driven deposit costs up	Projections - cost	High	Negative	Objective
Tax rates	Projections - cost	Low	Neutral	Objective
Industry conditions
Markets multiples have declined
	Price to TBV	Mod	Negative	Objective
	Price to TBV (AOCI)	Mod	Negative	Objective
	Price to Earnings Multiple	Mod	Negative	Objective
	Core deposit premium	Mod	Positive	Objective
Entity Specific events and circumstances
Growth Rates are higher than anticipated	Projections - Asset growth rate	High	Positive	Objective

Deferred Tax Assets and Liabilities

Income taxes include both a current and deferred portion. Deferred tax assets and liabilities are recorded to account for differences in the timing of the recognition of revenues and expenses for financial reporting and tax purposes. Generally accepted accounting principles require that deferred tax assets be reviewed to determine whether a valuation allowance should be established using a “more likely than not” standard. Based on its review of ChoiceOne’s deferred tax assets as of December 31, 2023, management determined that no valuation allowance was necessary. The valuation of current and deferred income tax assets and liabilities is considered critical, as it requires management to make estimates based on provisions of the enacted tax laws. The assessment of tax assets and liabilities involves the use of estimates, assumptions, interpretations, and judgments concerning certain accounting pronouncements and the federal tax code.

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Item 7A. Qu antitative and Qualitative Disclosures About Market Risk

Interest rate risk is related to liquidity because each is affected by maturing assets and sources of funds. ChoiceOne’s Risk Committee attempts to stabilize the interest rate spread and avoid possible adverse effects when unusual or rapid changes in interest rates occur. The Risk Committee uses a simulation model to measure the Bank’s interest rate risk. The model incorporates changes in interest rates on rate-sensitive assets and liabilities. The degree of rate sensitivity is affected by prepayment assumptions that exist in the assets and liabilities. One method the Risk Committee uses of measuring interest rate sensitivity is the ratio of rate-sensitive assets to rate-sensitive liabilities. An asset or liability is considered to be rate-sensitive if it matures or otherwise reprices within a given time frame.

Table 5 documents the maturity or repricing schedule for ChoiceOne’s rate-sensitive assets and liabilities for selected time periods:

Table 5 – Maturities and Repricing Schedule

		As of December 31, 2023
(Dollars in thousands)		0 - 3				3 - 12				1 - 5				Over
		Months				Months				Years				5 Years				Total
Assets
Equity securities at fair value		$	7,505			$	-			$	-			$	-			$	7,505
Securities available for sale			72,671				16,262				116,948				308,717				514,598
Securities held to maturity			23,863				7,932				28,282				347,882				407,959
Federal Home Loan Bank stock			4,449				-				-				-				4,449
Federal Reserve Bank stock			-				-				-				5,065				5,065
Loans held for sale			4,710				-				-				-				4,710
Loans to other financial institutions			19,400				-				-				-				19,400
Core Loans			311,184				170,790				719,686				189,593				1,391,253
Cash surrender value of life insurance policies			-				-				-				45,074				45,074
Interest rate derivative contracts			716				8,164				-				-				8,880
Rate-sensitive assets		$	444,498			$	203,148			$	864,916			$	896,331			$	2,408,893
Liabilities
Interest-bearing demand deposits		$	599,681			$	-			$	-			$	-			$	599,681
Money market deposits			247,602				-				-				-				247,602
Savings deposits			336,851				-				-				-				336,851
Certificates of deposit			71,688				261,019				33,878				266				366,851
Brokered deposits			12,056				6,754				4,635				-				23,445
Borrowings			-				170,000				30,000				-				200,000
Subordinated debentures			3,392				-				32,115				-				35,507
Interest rate derivative contracts			-				-				-				-				-
Rate-sensitive liabilities		$	1,271,270			$	437,773			$	100,628			$	266			$	1,809,937
Rate-sensitive assets less rate-sensitive liabilities:
Asset (liability) gap for the period		$	(826,772	)		$	(234,625	)		$	764,288			$	896,065			$	598,956
Cumulative asset (liability) gap		$	(826,772	)		$	(1,061,397	)		$	(297,109	)		$	598,956

(1) Interest rate derivative contracts include pay fixed, receive variable swaps with a notional value of $401.0 million. Further details can be found in Note 8 – Derivatives and Hedging Activities.

Under this method, the Risk Committee measures interest rate sensitivity by focusing on the one-year repricing gap. ChoiceOne’s ratio of rate-sensitive assets to rate-sensitive liabilities that matured or repriced within a one-year time frame was 38% at December 31, 2023, compared to 36% at December 31, 2022. Table 5 above shows the entire balance of interest-bearing demand deposits, savings deposits, and money market deposits in the shortest repricing term. Although these categories have the ability to reprice immediately, management has some control over the actual timing or extent of the changes in interest rates on these liabilities. The Risk Committee plans to continue to monitor the ratio of rate-sensitive assets to rate-sensitive liabilities on a quarterly basis in 2024. As interest rates change, the Risk Committee will attempt to match its maturing assets with corresponding liabilities to maximize ChoiceOne’s net interest income.

Another method the Risk Committee uses to monitor its interest rate sensitivity is to subject rate-sensitive assets and liabilities to interest rate shocks. At December 31, 2023, management used a simulation model to subject its assets and liabilities up to an immediate 200 basis point increase and decline. The maturities of loans and mortgage-backed securities were affected by certain prepayment assumptions. Maturities for interest-bearing core deposits were based on an estimate of the period over which they would be outstanding. The maturities of advances from the borrowings were based on their contractual maturity dates. In the case of variable rate assets and

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liabilities, repricing dates were used to determine their values. The simulation model measures the effect of immediate interest rate changes on both net interest income and shareholders’ equity.

Table 6 provides an illustration of hypothetical interest rate changes as of December 31, 2023 and 2022:

Table 6 – Sensitivity to Changes in Interest Rates

		2023
		Net								Market
(Dollars in thousands)		Interest				Percent				Value of				Percent
		Income				Change				Equity				Change
Change in Interest Rate
200 basis point rise			67,650				-2		%		480,950				8		%
100 basis point rise			68,430				-1		%		469,920				5		%
Base rate scenario			69,100				-		%		446,210				-		%
100 basis point decline			66,660				-4		%		407,940				-9		%
200 basis point decline			66,120				-4		%		350,800				-21		%

		2022
		Net								Market
(Dollars in thousands)		Interest				Percent				Value of				Percent
		Income				Change				Equity				Change
Change in Interest Rate
200 basis point rise			61,826				-11		%		355,701				15		%
100 basis point rise			66,025				-5		%		338,913				9		%
Base rate scenario			69,734				-		%		309,801				-		%
100 basis point decline			71,788				3		%		260,889				-16		%
200 basis point decline			71,276				2		%		181,078				-42		%

As of December 31, 2023, the Bank was within its guidelines for immediate rate shocks up and down for all net interest income scenarios and for the up rate scenarios for the market value of shareholders’ equity. The Bank’s percent change in the 100 and 200 basis points down scenarios for the market value of shareholders’ equity was higher than the policy guidelines. As of December 31, 2022, the Bank was within its guidelines for immediate rate shocks up and down for all net interest income scenarios and for the up rate scenarios and the down 100 and down 200 basis points scenarios for the market value of shareholders’ equity. The Risk Committee plans to continue to monitor the effect of changes in interest rates on both net interest income and shareholders’ equity and will make changes in the duration of its rate-sensitive assets and rate-sensitive liabilities where necessary.

Item 8. Financial S tatements and Supplementary Data

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Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors of ChoiceOne Financial Services, Inc.

Opinion on the Financial Statements

We have audited the accompanying balance sheets of ChoiceOne Financial Services, Inc. (the “Company”) as of December 31, 2023 and 2022, the related statements of income, comprehensive income, changes in stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 2023, and the related notes(collectively referred to as the “financial statements”). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

Change in Accounting Principle

As discussed in Note 1 to the financial statements, the Company has changed its method of accounting for credit losses effective January 1, 2023 due to the adoption of Accounting Standards Codification Topic 326: Financial Instruments – Credit Losses (“ASC 326”). The Company adopted the new credit loss standard using the modified retrospective method such that prior period amounts are not adjusted and continue to be reported in accordance with previously applicable generally accepted accounting principles. The subsequent application of Topic 326 is also communicated as a critical audit matter below.

Basis for Opinion

The Company's management is responsible for these financial statements. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Allowance for Credit Losses – Qualitative Adjustment

As described in Notes 1 and 3 to the financial statements, management’s estimate of the allowance for credit losses (ACL) at December 31, 2023, includes a reserve on collectively evaluated loans. The reserve on collectively evaluated loans is based on an historical average loss rates of peer banks, adjusted for current and forecasted factors, applied over the remaining life of loans. Management applies an adjustment for qualitative factors based on internal and external qualitative and credit market risk factors as described in Note 1 and 3 to the financial statements.

Significant judgment was required by management in the selection and measurement of qualitative factor adjustments. Accordingly, performing audit procedures to evaluate the Company’s estimated ACL involved a high degree of auditor judgment and required significant effort, including the involvement of professionals with specialized skill and knowledge.

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How the Critical Audit Matter was Addressed in the Audit

Our audit procedures related to the Company’s estimate of the ACL included, but were not limited to, the following:

/s/ Plante & Moran, PLLC

We have served as the Company’s auditor since 2006.

Grand Rapids, Michigan

March 13, 2024

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ChoiceOne Financial Services, Inc.

Consolidated Balance Sheets

		December 31,
(Dollars in thousands)		2023				2022
Assets
Cash and due from banks		$	55,083			$	43,593
Time deposits in other financial institutions			350				350
Cash and cash equivalents			55,433				43,943
Equity securities, at fair value (Note 2)			7,505				8,566
Securities available for sale, at fair value (Note 2)			514,598				529,749
Securities held to maturity, at amortized cost (Note 2)			407,959				425,906
Federal Home Loan Bank stock			4,449				3,517
Federal Reserve Bank stock			5,065				5,064
Loans held for sale			4,710				4,834
Loans to other financial institutions			19,400				-
Core Loans			1,391,253				1,189,782
Total loans (Note 3)			1,410,653				1,189,782
Allowance for loan losses (Note 3)			( 15,685	)			( 7,619	)
Loans, net			1,394,968				1,182,163
Premises and equipment, net (Note 5)			29,750				28,232
Other real estate owned, net (Note 7)			122				-
Cash value of life insurance policies			45,074				43,978
Goodwill (Note 6)			59,946				59,946
Core deposit intangible (Note 6)			1,854				2,809
Other assets			45,273				47,208
Total assets		$	2,576,706			$	2,385,915
Liabilities
Deposits – noninterest-bearing (Note 9)		$	547,625			$	599,579
Deposits – interest-bearing (Note 9)			1,550,985				1,516,681
Brokered deposits (Note 9)			23,445				1,743
Total deposits			2,122,055				2,118,003
Borrowings (Note 10)			200,000				50,000
Subordinated debentures (Note 11)			35,507				35,262
Other liabilities (Notes 12)			23,510				13,776
Total liabilities			2,381,072				2,217,041
Shareholders’ Equity
Preferred stock; shares authorized: 100,000 ; shares outstanding: none			-				-
Common stock and paid-in capital, no par value; shares authorized: 15,000,000 ; shares outstanding: 7,548,217 at December 31, 2023 and 7,516,098 at December 31, 2022 (Note 16)			173,513				172,277
Retained earnings			73,699				68,394
Accumulated other comprehensive income, net			( 51,578	)			( 71,797	)
Total shareholders’ equity			195,634				168,874
Total liabilities and shareholders’ equity		$	2,576,706			$	2,385,915

See accompanying notes to consolidated financial statements.

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ChoiceOne Financial Services, Inc.

Consolidated Statements of Income

		Year Ended
(Dollars in thousands, except per share data)		December 31,
		2023				2022				2021
Interest income
Loans, including fees		$	68,384			$	52,823			$	48,657
Securities:
Taxable			21,169				15,583				10,260
Tax exempt			5,629				6,163				5,617
Other			3,798				491				84
Total interest income			98,980				75,060				64,618
Interest expense
Deposits			23,990				5,845				3,305
Advances from Federal Home Loan Bank			1,771				117				22
Other			7,334				1,784				650
Total interest expense			33,095				7,746				3,977
Net interest income			65,885				67,314				60,641
Provision for (reversal of) credit losses on loans			1,265				250				416
Provision for (reversal of) credit losses on unfunded commitments			( 1,115	)			-				-
Net Provision for (reversal of) credit losses expense			150				250				416
Net interest income after provision for credit losses			65,735				67,064				60,225
Noninterest income
Customer service charges			9,347				9,350				8,628
Insurance and investment commissions			698				779				765
Mortgage servicing rights (Note 4)			820				1,007				2,335
Gains on sales of loans (Note 4)			1,134				1,336				4,441
Net (losses) gains on sales of securities (Note 2)			( 71	)			( 809	)			( 40	)
Net (losses) gains on sales and write-downs of other assets (Note 7)			147				99				6
Earnings on life insurance policies			1,096				1,312				809
Trust income			771				734				790
Change in market value of equity securities			( 246	)			( 955	)			479
Other			1,210				1,219				981
Total noninterest income			14,906				14,072				19,194
Noninterest expense
Salaries and benefits (Note 13 and 14)			31,963				30,391				29,300
Occupancy and equipment (Note 5)			6,048				6,189				6,168
Data processing			6,618				6,729				6,189
Professional fees			2,198				2,175				3,009
Supplies and postage			780				719				614
Advertising and promotional			721				764				848
Intangible amortization (Note 6)			955				1,153				1,307
FDIC insurance			1,184				722				804
Other			4,607				4,636				4,682
Total noninterest expense			55,074				53,478				52,921
Income before income tax			25,567				27,658				26,498
Income tax expense			4,306				4,018				4,456
Net income		$	21,261			$	23,640			$	22,042
Basic earnings per share (Note 16)		$	2.82			$	3.15			$	2.87
Diluted earnings per share (Note 16)		$	2.82			$	3.15			$	2.86
Dividends declared per share		$	1.05			$	1.01			$	0.94

See accompanying notes to consolidated financial statements.

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ChoiceOne Financial Services, Inc.

Consolidated Statements of Comprehensive Income

		Year Ended
(Dollars in thousands)		December 31,
		2023				2022				2021
Net income		$	21,261			$	23,640			$	22,042
Other comprehensive income:
Change in net unrealized gain (loss) on AFS securities			20,934				( 91,923	)			( 17,261	)
Income tax benefit (expense)			( 4,396	)			19,304				3,625
Less: reclassification adjustment for net (gain) loss included in net income			-				809				39
Income tax benefit (expense)			-				( 170	)			( 7	)
Less: reclassification adjustment for net (gain) loss for fair value hedge			( 1,534	)			1,930				-
Income tax benefit (expense)			322				( 405	)			-
Less: net unrealized (gains) losses on securities transferred from AFS to HTM			-				3,404				-
Income tax benefit (expense)			-				( 715	)			-
Unrealized gain (loss) on AFS securities, net of tax			15,326				( 67,766	)			( 13,604	)
Reclassification of unrealized gain (loss) upon transfer of securities from AFS to HTM			-				( 3,404	)			-
Income tax benefit (expense)			-				715				-
Amortization of net unrealized (gains) losses on securities transferred from AFS to HTM			333				351				-
Income tax benefit (expense)			( 70	)			( 74	)			-
Unrealized loss on held to maturity securities, net of tax			263				( 2,412	)			-
Change in net unrealized gain (loss) on cash flow hedge			3,024				( 558	)			-
Income tax benefit (expense)			( 635	)			117				-
Less: reclassification adjustment for net (gain) loss on cash flow hedge			-				771				-
Income tax benefit (expense)			-				( 162	)			-
Less: amortization of net unrealized (gains) losses included in net income			2,837				999				-
Income tax benefit (expense)			( 596	)			( 210	)			-
Unrealized gain (loss) on cash flow hedge instruments, net of tax			4,630				957				-
Other comprehensive income (loss), net of tax			20,219				( 69,221	)			( 13,604	)
Comprehensive income (loss)		$	41,480			$	( 45,581	)		$	8,438

See accompanying notes to consolidated financial statements.

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ChoiceOne Financial Services, Inc.

Consolidated Statements of Changes in Shareholders’ Equity

														Accumulated
						Common								Other
						Stock and								Comprehensive
		Number of				Paid in				Retained				Income/(Loss),
(Dollars in thousands, except per share data)		Shares				Capital				Earnings				Net				Total
Balance, January 1, 2021			7,796,352			$	178,750			$	37,490			$	11,028			$	227,268
Net income											22,042								22,042
Other comprehensive income (loss)															( 13,604	)			( 13,604	)
Shares issued			23,301				509												509
Effect of employee stock purchases							25												25
Stock-based compensation expense							415												415
Shares repurchased			( 309,274	)			( 7,786	)											( 7,786	)
Cash dividends declared ($ 0.94 per share)											( 7,200	)							( 7,200	)
Balance, December 31, 2021			7,510,379			$	171,913			$	52,332			$	( 2,576	)		$	221,669
Net income											23,640								23,640
Other comprehensive income (loss)															( 69,221	)			( 69,221	)
Shares issued			31,618				461												461
Effect of employee stock purchases							31												31
Stock-based compensation expense			-				554												554
Shares repurchased			( 25,899	)			( 682	)											( 682	)
Cash dividends declared ($ 1.01 per share)											( 7,578	)							( 7,578	)
Balance, December 31, 2022			7,516,098			$	172,277			$	68,394			$	( 71,797	)		$	168,874
Adoption of ASU 2016-13 (CECL ) on January 1, 2023											( 8,046	)							( 8,046	)
Balance, January 1, 2023			7,516,098			$	172,277			$	60,348			$	( 71,797	)		$	160,828
Net income											21,261								21,261
Other comprehensive income (loss)															20,219				20,219
Shares issued			31,472				566												566
Effect of employee stock purchases							41												41
Stock-based compensation expense							629												629
Stock options exercised and issued (1)			647																-
Cash dividends declared ($ 1.05 per share)											( 7,910	)							( 7,910	)
Balance, December 31, 2023			7,548,217			$	173,513			$	73,699			$	( 51,578	)		$	195,634

See accompanying notes to consolidated financial statements.

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ChoiceOne Financial Services, Inc.

Consolidated Statements of Cash Flows

	Year Ended
(Dollars in thousands)	December 31,
	2023				2022				2021
Cash flows from operating activities:
Net income	$	21,261			$	23,640			$	22,042
Adjustments to reconcile net income to net cash from operating activities:
(Reversal of) provision for credit losses		150				250				416
Depreciation		2,477				2,658				2,624
Amortization		9,953				10,684				9,801
Compensation expense on employee and director stock purchases, stock options, and restricted stock units		1,005				958				812
Net (gains) losses on sales of securities		71				809				40
Net change in market value of equity securities		246				955				( 479	)
Gains on sales of loans and capitalized servicing rights		( 1,954	)			( 2,343	)			( 6,776	)
Loans originated for sale		( 56,085	)			( 71,829	)			( 197,387	)
Proceeds from loan sales		57,342				77,681				205,398
Earnings on bank-owned life insurance		( 1,096	)			( 1,038	)			( 778	)
Proceeds from BOLI policy		-				690				204
Earnings on death benefit from bank-owned life insurance		-				( 274	)			( 31	)
(Gains) on sales of other real estate owned		( 12	)			( 41	)			( 19	)
Proceeds from sales of other real estate owned		157				235				611
Deferred federal income tax (expense) benefit		( 24	)			( 15	)			924
Net change in:
Other assets		5,395				( 4,208	)			( 5,418	)
Other liabilities		7,596				6,205				5,715
Net cash provided by operating activities		46,482				45,017				37,699
Cash flows from investing activities:
Sales of securities available for sale		-				47,167				29,742
Sales of equity securities		887				-				-
Proceeds from Federal Home Loan Bank stock redemption		3,917				-				-
Maturities, prepayments and calls of securities available for sale		32,289				51,570				54,202
Maturities, prepayments and calls of securities held to maturity		16,572				8,091				-
Purchases of securities available for sale		( 1,646	)			( 55,053	)			( 632,826	)
Purchases of securities held to maturity		( 597	)			( 7,505	)			-
Purchases of equity securities		-				( 1,029	)			( 5,117	)
Purchases of Federal Home Loan Bank stock		( 4,849	)			-				-
Purchase of bank-owned life insurance policies		-				-				( 10,000	)
Loan originations and payments, net		( 221,245	)			( 130,620	)			45,384
Additions to premises and equipment		( 4,234	)			( 1,164	)			( 2,759	)
Proceeds from (payments for) derivative contracts, net		1,732				( 1,953	)			-
Payments for derivative contracts settlements		( 4,191	)			-				-
Net cash (used in)/provided by investing activities		( 181,365	)			( 90,496	)			( 521,374	)
Cash flows from financing activities:
Net change in deposits		4,052				65,709				377,716
Proceeds from borrowings		420,000				726,000				87,500
Payments on borrowings		( 270,000	)			( 726,000	)			( 14,326	)
Issuance of common stock		231				172				139
Repurchase of common stock		-				( 682	)			( 7,786	)
Share based compensation withholding obligation		-				( 85	)			-
Cash dividends		( 7,910	)			( 7,578	)			( 7,200	)
Net cash provided by/(used in) financing activities		146,373				57,536				436,043
Net change in cash and cash equivalents		11,490				12,057				( 47,632	)
Beginning cash and cash equivalents		43,943				31,887				79,519
Ending cash and cash equivalents	$	55,433			$	43,943			$	31,887
Supplemental disclosures of cash flow information:
Cash paid for interest	$	27,481			$	7,577			$	3,718
Cash paid for income taxes		4,450				1,989				3,251
Loans transferred to other real estate owned		266				-				520

See accompanying notes to consolidated financial statements.

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Item 9. C hanges in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Cont rols and Procedures

An evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and principal financial officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures. Based on and as of the time of that evaluation, the Company’s management, including the Chief Executive Officer and principal financial officer, concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the required time periods.

Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting that is designed to produce reliable financial statements in conformity with United States generally accepted accounting principles. The system of internal control over financial reporting as it relates to the financial statements is evaluated for effectiveness by management and tested for reliability through a program of internal audits. Actions are taken to correct potential deficiencies as they are identified. Any system of internal control, no matter how well designed, has inherent limitations, including the possibility that a control can be circumvented or overridden and misstatements due to error or fraud may occur and not be detected. Also, because of changes in conditions, internal control effectiveness may vary over time. Accordingly, even an effective system of internal control will provide only reasonable assurance with respect to financial statement preparation.

Management assessed the effectiveness of the Company’s system of internal control over financial reporting as of December 31, 2023, as required by Section 404 of the Sarbanes-Oxley Act of 2002. Management’s assessment is based on the criteria for effective internal control over financial reporting as described in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this assessment, management has concluded that, as of December 31, 2023, its system of internal control over financial reporting was effective and meets the criteria of the “Internal Control – Integrated Framework."

There was no change in the Company’s internal control over financial reporting that occurred during the three months ended December 31, 2023 that has materially affected, or that is reasonably likely to materially affect, the Company’s internal control over financial reporting.

Item 9B. Other In formation

None.

Item 9C. Disclos ure Regarding Foreign Jurisdictions that Prevent Inspections

None.

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PART III

Item 10. Dir ectors, Executive Officers and Corporate Governance

The information under the captions “ChoiceOne's Board of Directors and Executive Officers and “Corporate Governance” in the Company's Definitive Proxy Statement for the Annual Meeting of Shareholders to be held May 29, 2024, is incorporated herein by reference.

The Company has adopted a Code of Ethics for Executive Officers and Senior Financial Officers, which applies to the Chief Executive Officer and the Chief Financial Officer, as well as all other senior financial and accounting officers. The Code of Ethics is posted on the Company’s website at “ www.choiceone.bank. ” The Company intends to satisfy the disclosure requirements under Item 5.05 of Form 8-K regarding an amendment to, or a waiver from, a provision of the Code of Ethics by posting such information on its website at “ www.choiceone.bank. ”

Item 11. Exe cutive Compensation

The information under the captions “Executive Compensation” in the Company's Definitive Proxy Statement for the Annual Meeting of Shareholders to be held May 29, 2024, is incorporated herein by reference.

Item 12. Secu rity Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information under the caption "Ownership of ChoiceOne Common Stock" in the Company's Definitive Proxy Statement for the Annual Meeting of Shareholders to be held May 29, 2024, is incorporated herein by reference.

The following table presents information regarding the equity compensation plans both approved and not approved by shareholders at December 31, 2023:

Number of securities

remaining available for

Number of securities to

Weighted-average

future issuance under

be issued upon exercise

exercise price of

equity compensation plans

of outstanding options,

outstanding options,

(excluding securities

warrants and rights

warrants and rights

reflected in column (a))

(a)

(b)

(c)

Equity compensation plans approved by security holders

81,314

$

3.91

324,481

Equity compensation plans not approved by security holders

—

—

152,967

Total

81,314

$

3.91

477,448

Equity compensation plans approved by security holders include the Stock Incentive Plan of 2012, the Equity Incentive Plan of 2022, and the 2022 Employee Stock Purchase Plan. As of December 31, 2023, 142,755 shares remained available for future issuance under the Equity Incentive Plan of 2022 and 181,726 shares remained available for future issuance under the 2022 Employee Stock Purchase Plan, in each case other than upon the exercise of outstanding stock options. The Stock Incentive Plan of 2012 has expired and no further issuance of shares is permitted under the plan other than upon the exercise or vesting of outstanding awards.

The Directors’ Stock Purchase Plan and the Directors’ Equity Compensation Plan are the only equity compensation plans not approved by security holders. The Directors’ Stock Purchase Plan is designed to provide directors of the Company the option of receiving their fees in the Company’s common stock. Directors who elect to participate in the plan may elect to contribute to the plan twenty-five, fifty, seventy-five or one hundred percent of their board of director fees and one hundred percent of their director committee fees earned as directors of the Company. Contributions to the plan are made by the Company on behalf of each electing participant. Plan participants may terminate their participation in the plan at any time by written notice of withdrawal to the Company. The Directors’ Equity Compensation Plan provides for the grant and award of stock options, restricted stock, restricted stock units, stock awards, and other stock-based and stock-related awards as part of director compensation. Participants will cease to be eligible to participate in both plans when they cease to serve as directors of the Company. Shares are distributed to participants on a quarterly basis. The Directors' Equity Compensation Plan provides for the issuance of a maximum of 100,000 shares of the Company's common stock thereunder and the Directors' Stock Purchase Plan provides for issuance of a maximum of 100,000 shares thereunder, in each case subject to adjustments for certain changes in the capital structure of the Company. As of December 31, 2023, 79,926 shares remained available for issuance

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under the Directors' Equity Compensation Plan and 73,041 shares remained available for issuance under the Directors' Stock Purchase Plan.

Item 13. Cert ain Relationships and Related Transactions, and Director Independence

The information under the captions “Related Matters - Transactions with Related Persons” and “Corporate Governance” in the Company's Definitive Proxy Statement for the Annual Meeting of Shareholders to be held May 29, 2024, is incorporated herein by reference.

Item 14. P rincipal Accountant Fees and Services

The information under the caption "Related Matters - Independent Certified Public Accountants" in the Company's Definitive Proxy Statement for the Annual Meeting of Shareholders to be held May 29, 2024, is incorporated herein by reference.

Independent Registered Public Accounting Firm:

Name: Plante & Moran, PLLC

Location: Southfield, Michigan

PCAOB ID: 166

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PART IV

Item 15. E xhibits and Financial Statement Schedules

(a)	(1)	Financial Statements . The following financial statements and independent auditors' reports are filed as part of this report:
			Consolidated Balance Sheets at December 31, 2023 and 2022.
			Consolidated Statements of Income for the years ended December 31, 2023, 2022, and 2021.
			Consolidated Statement of Comprehensive Income for the years ended December 31, 2023, 2022, and 2021.
			Consolidated Statements of Changes in Shareholders' Equity for the years ended December 31, 2023, 2022, and 2021.
			Consolidated Statements of Cash Flows for the years ended December 31, 2023, 2022, and 2021.
			Notes to Consolidated Financial Statements.
			Report of Independent Registered Public Accounting Firm dated March 13, 2024.
	(2)	Financial Statement Schedules . None.

Exhibit	Document
3.1	Restated Articles of Incorporation of ChoiceOne Financial Services, Inc. Previously filed as an exhibit to ChoiceOne’s Form 10-K Annual Report for the year ended December 31, 2022. Here incorporated by reference.
3.2	Bylaws of ChoiceOne Financial Services, Inc., as currently in effect and any amendments thereto. Previously filed as an exhibit to ChoiceOne Financial Services, Inc.'s Form 8-K filed April 21, 2021. Here incorporated by reference.
4.1	Advances, Pledge and Security Agreement between ChoiceOne Bank and the Federal Home Loan Bank of Indianapolis. Previously filed as an exhibit to ChoiceOne Financial Services, Inc.’s Form 10-K Annual Report for the year ended December 31, 2013. Here incorporated by reference.
4.2	Form of 3.25% Fixed-to-Floating Rate Subordinated Note due September 3, 2031. Previously filed as an exhibit to ChoiceOne Financial Services, Inc.'s Form 8-K filed September 7, 2021. Here incorporated by reference.
4.3	Form of 3.25% Fixed-to-Floating Rate Global Subordinated Note due September 3, 2031. Previously filed as an exhibit to ChoiceOne Financial Services, Inc.'s Form 8-K filed September 7, 2021. Here incorporated by reference.
4.4	Description of Rights of Shareholders. Previously filed as an exhibit to ChoiceOne’s Form 10-K Annual Report for the year ended December 31, 2022. Here incorporated by reference.
10.1	Employment Agreement between ChoiceOne Financial Services, Inc. and Kelly J. Potes, dated as of September 30, 2019. (1) Previously filed as an exhibit to ChoiceOne’s Form 8-K filed October 1, 2019. Here incorporated by reference.
10.2	Employment Agreement between ChoiceOne Financial Services, Inc. and Michael J. Burke, Jr., dated as of March 22, 2019. (1) Previously filed as exhibit to ChoiceOne’s Pre-Effective Amendment No. 2 to Form S-4 filed August 5, 2019. Here incorporated by reference.
10.3	Stock Incentive Plan of 2012. (1) Previously filed as Appendix A to ChoiceOne’s definitive proxy statement for ChoiceOne’s 2018 Annual Meeting of Shareholders, filed on April 19, 2018. Here incorporated by reference.
10.4	2022 Employee Stock Purchase Plan. (1) Previously filed as an exhibit to ChoiceOne’s Form S-8 filed May 27, 2022. Here incorporated by reference.
10.5	Equity Incentive Plan of 2022. (1) Previously filed as an exhibit to ChoiceOne’s Form S-8 filed May 27, 2022. Here incorporated by reference.

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10.6	Directors' Stock Purchase Plan, as amended. (1) Previously filed as an exhibit to ChoiceOne Financial Services, Inc.'s Form 10-K Annual Report for the year ended December 31, 2019. Here incorporated by reference.
10.7	Director Equity Compensation Plan of 2019. (1) Previously filed as an exhibit to ChoiceOne Financial Services, Inc.'s Form 10-K Annual Report for the year ended December 31, 2019. Here incorporated by reference.
10.8	Former Valley Ridge Executive Employee Salary Continuation Agreements, as amended. (1) Previously filed as an exhibit to ChoiceOne Financial Services, Inc.’s Form 10-K Annual Report for the year ended December 31, 2013. Here incorporated by reference.
10.9	Former Valley Ridge Directors’ Deferred Compensation Plan and Agreement. (1) Previously filed as an exhibit to the ChoiceOne Financial Services, Inc.’s Form 10-K Annual Report for the year ended December 31, 2013. Here incorporated by reference.
19	Insider Trading Policy
21	Subsidiaries of ChoiceOne Financial Services, Inc.
23	Consent of Independent Registered Public Accounting Firm.
24	Powers of Attorney.
31.1	Certification of Chief Executive Officer.
31.2	Certification of Chief Financial Officer
32	Certification pursuant to 18 U.S.C. § 1350.
97	Incentive-Based Compensation Recoupment Policy
101.INS	Inline XBRL Instance Document (the Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)
101.SCH	Inline XBRL Taxonomy Extension Schema Document
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document
104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

Copies of any exhibits will be furnished to shareholders upon written request. Requests should be directed to: Adom J. Greenland, Secretary, Chief Financial Officer and Treasurer, ChoiceOne Financial Services, Inc., 109 East Division, Sparta, Michigan, 49345.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	ChoiceOne Financial Services, Inc.
By:	/s/ Kelly J. Potes		March 13, 2024
	Kelly J. Potes Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

/s/ Kelly J. Potes		Chief Executive Officer and		March 13, 2024
Kelly J. Potes		Director (Principal Executive Officer)
/s/ Adom J. Greenland		Chief Financial Officer and Treasurer (Principal Financial and		March 13, 2024
Adom J. Greenland		Accounting Officer)
*/s/ Jack G. Hendon		Chairman of the Board and Director		March 13, 2024
Jack G. Hendon
*/s/ Greg L. Armock		Director		March 13, 2024
Greg L. Armock
*/s/ Keith Brophy		Director		March 13, 2024
Keith Brophy
*/s/ Michael J. Burke, Jr.		President and Director		March 13, 2024
Michael J. Burke, Jr.
*/s/ Harold J. Burns		Director		March 13, 2024
Harold J. Burns
*/s/ Eric E. Burrough		Director		March 13, 2024
Eric E. Burrough
*/s/ Curt E. Coulter		Director		March 13, 2024
Curt E. Coulter
*/s/ Bruce John Essex, Jr.		Director		March 13, 2024
Bruce John Essex, Jr.
*/s/ Gregory A. McConnell		Director		March 13, 2024
Gregory A. McConnell
*/s/ Bradley F. McGinnis		Director		March 13, 2024
Bradley F. McGinnis
*/s/ Roxanne M. Page		Director		March 13, 2024
Roxanne M. Page
*/s/ Michelle M. Wendling		Director		March 13, 2024
Michelle M. Wendling
*By /s/ Adom J. Greenland
Attorney-in-Fact

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